The study, by pay analysts Incomes Data Services (IDS), shows pay rises have remained at 2.5 per cent on average in recent months.
It means workers are effectively suffering pay cuts because the amount of cash left in their pockets after paying their bills will be lower.
By contrast the Retail Prices Index, the measure of inflation traditionally used to set pay increases, stands at more than double that level at 5.3 per cent.
Leave aside all the macroeconomics for a bit and concentrate on the micro.
We do have structural unemployment: no one is saying that at the peak of the boom in 2006/7 everything was just tickety boo on the unemployment front.
A market not clearing is at least an indication that prices in that market are too high for the market to clear. Thus a possible solution is for prices to fall so that the market will clear.
If wages fall relative to other prices then labour is becoming cheaper and we can therefore epet more labour to be hired in the future.
Think of this as a mild version of what Greece, Portugal and Spain have to do: those internal devaluations.
With a bit of Keynes added. For as he pointed out people are most loathe to have cuts to their nominal wages, but will put up with quite a lot of cuts to their real wages through inflation.
It\’s not nice of course, it does mean lowering the level of living standards. But looked at this way it\’s a way of solving the unemployment problem.