The value of wages in real terms has been falling consistently since 2010, the longest period for 50 years.
The decline, which means that the cost of living is outstripping salaries, was attributed to low growth in productivity, or the goods and services that are produced in relation to the workforce.
Well, yes, sorta. But a more convincing one is, I think, that we’ve not seen the growth in unemployment that we might have expected. Instead of firing people in these bad times companies have been restraining wages. This leads to both higher employment than might have occurred and, of course, lower productivity.
You might ay that this is just quibbling. But there’s an important point behind it. We all do indeed want wages to grow faster than inflation for we do all indeed want living standards to improve. But e’ve got to identify what the problem is properly before we can try to solve it.
And if we say “low productivity” is the problem then we might start trying to solve it through increased productivity measures. Like, say, firing the lowest performing 10% of the workforce: that is a very swift indeed method of improving the productivity of those who remain in employment.
But it’s not obvious that this is what we really want to do. It might well be better that it is wages that take the strain of economic bad times rather than unemployment lines.
If we do say that this is what has been happening then we might come to a rather different solution. For example, decent economic growth will solve this problem nicely. And I’m convinced that one of the great breaks on growth at present is the red tape that bogs down anyone at all attempting to do anything at all new. Cut the red tape, get more growth and we’ll soon enough see wages and productivity rise.
This is, of course, a microeconomic solution but then as I’ve said before in the long run it is all microeconomics.