I’ve been writing concerning the UK’s slowdown in productiveness development for a few decade, as I mentioned right here. I believe it’s truthful to say that this concern is well-understood amongst economists and a few coverage individuals, however productiveness is an summary idea. So, it’s maybe unsurprising that, even now, the seriousness of our financial scenario isn’t totally understood by commentators and journalists, not to mention the broader public.
However there’s a technique during which our productiveness slowdown has very seen on a regular basis penalties – and that’s in the long run of wage development. As my plot exhibits, wages have flatlined within the UK over final 15 years. This lengthy interval of stagnation is unprecedented in residing reminiscence, & marks a decisive & unwelcome break from the UK’s postwar financial trajectory.
Common actual weekly UK wages. Inexperienced: Composite Common Weekly Earnings collection, corrected for inflation utilizing shopper costs index. Thomas, R and Dimsdale, N (2017) “A Millennium of UK Knowledge”, Financial institution of England OBRA dataset. Brown: ONS, Actual Common Weekly Earnings, whole pay, utilizing CPI (seasonally adjusted). 18/2/2025 launch.
The interval from the top of the Second World Struggle proper as much as the mid 2000s exhibits a remarkably constant report of wage development. There are moments of financial turbulence which can be mirrored in deviations from the pattern of steady 2.8% pa development; a short-lived interval of extra fast development within the late 60s and early 70s – the Barber growth – with the surplus development unwinding within the mid-Seventies disaster. And once more, extra fast development within the late Nineteen Eighties Lawson growth, with the surplus beneficial properties misplaced in weaker wage development within the subsequent recession.
However nothing compares to the stagnation that we’ve seen because the international monetary disaster. By the financial measure that arguably issues most to individuals at giant – how their wages develop – the final decade and a half is by far the worst interval because the conflict. As compared, the financial turbulence of the 1970’s appears to be like like a golden age.
UK labour productiveness, index 2022=100. Knowledge: ONS, 15/11/2024 launch. Line: non-linear least squares match to 2 exponential capabilities, steady on the break level, which happens at 2005 for one of the best match. See When did the UK’s productiveness slowdown start? for extra particulars of the becoming method.
The tip of wage development within the UK is a direct consequence of the top of productiveness development. It’s value making a few factors concerning the hyperlink between productiveness development and wage development. Within the USA, that hyperlink is weaker than it was. However the UK will not be the USA; whereas within the USA the labour share of GDP – the share of total financial exercise that goes to wages, somewhat than rewarding the house owners of capital – has considerably fallen, this isn’t so within the UK. For no matter motive, within the UK, during the last decade, the labour share of GDP has really elevated.
In fact, my plot of wage development presents a single common, and it’s a good query to ask how the distribution of wages has modified with time – has this grow to be extra unequal, with extra of the advantages of productiveness development going to greater earners? It seems that, whereas there was a considerable enhance in inequality within the Nineteen Eighties, total measures of revenue inequality have been comparatively regular since then.
The wage development plot explains a lot about state of UK politics at this time. Few individuals have an intuitive really feel within the summary for what productiveness development – or its absence – means, however the sense of stalling residing requirements, and worse prospects for younger individuals, is all too palpable.
