I’ve been writing in regards to the UK’s slowdown in productiveness development for a couple of decade, as I mentioned right here. I feel it’s truthful to say that this concern 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 method through 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 Battle 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 development of steady 2.8% pa development; a short-lived interval of extra fast development within the late 60s and early 70s – the Barber increase – with the surplus development unwinding within the mid-Seventies disaster. And once more, extra fast development within the late Nineteen Eighties Lawson increase, with the surplus good points 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 giant – how their wages develop – the final decade and a half is by far the worst interval for the reason that conflict. As compared, the financial turbulence of the 1970’s seems 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 capabilities, steady on the break level, which happens at 2005 for the very best 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 in regards to the hyperlink between productiveness development and wage development. Within the USA, that hyperlink is weaker than it was. However the UK is just not 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 homeowners of capital – has considerably fallen, this isn’t so within the UK. For no matter purpose, within the UK, over the past decade, the labour share of GDP has truly elevated.
After all, 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 larger earners? It seems that, whereas there was a considerable improve in inequality within the Nineteen Eighties, total measures of earnings inequality have been comparatively regular since then.
The wage development plot explains a lot about state of UK politics right this 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.