I’ve been writing concerning the UK’s slowdown in productiveness development for a couple of decade, as I mentioned right here. I believe it’s honest to say that this problem is well-understood amongst economists and a few coverage folks, however productiveness is an summary idea. So, it’s maybe unsurprising that, even now, the seriousness of our financial state of affairs isn’t absolutely understood by commentators and journalists, not to mention the broader public.
However there’s a technique by 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 client costs index. Thomas, R and Dimsdale, N (2017) “A Millennium of UK Information”, 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 tip of the Second World Conflict proper as much as the mid 2000s exhibits a remarkably constant file of wage development. There are moments of financial turbulence which might be mirrored in deviations from the development 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-Nineteen Seventies disaster. And once more, extra fast development within the late Eighties Lawson growth, with the surplus positive factors misplaced in weaker wage development within the subsequent recession.
However nothing compares to the stagnation that we’ve seen for the reason that international monetary disaster. By the financial measure that arguably issues most to folks at massive – how their wages develop – the final decade and a half is by far the worst interval for the reason that warfare. As compared, the financial turbulence of the 1970’s appears like a golden age.
UK labour productiveness, index 2022=100. Information: ONS, 15/11/2024 launch. Line: non-linear least squares match to 2 exponential features, steady on the break level, which happens at 2005 for the most effective match. See When did the UK’s productiveness slowdown start? for extra particulars of the becoming strategy.
The top of wage development within the UK is a direct consequence of the tip 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 shouldn’t be the USA; whereas within the USA the labour share of GDP – the share of total financial exercise that goes to wages, reasonably than rewarding the house owners of capital – has considerably fallen, this isn’t so within the UK. For no matter cause, within the UK, over the past 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 change into extra unequal, with extra of the advantages of productiveness development going to greater earners? It seems that, whereas there was a considerable improve in inequality within the 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 the moment. Few folks 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 folks, is all too palpable.
