I’ve been writing concerning the UK’s slowdown in productiveness progress for a few decade, as I mentioned right here. I believe it’s honest to say that this difficulty 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 state of affairs isn’t totally understood by commentators and journalists, not to mention the broader public.
However there’s a technique through which our productiveness slowdown has very seen on a regular basis penalties – and that’s ultimately of wage progress. As my plot exhibits, wages have flatlined within the UK over final 15 years. This lengthy interval of stagnation is unprecedented in dwelling reminiscence, & marks a decisive & unwelcome break from the UK’s postwar financial trajectory.
Common actual weekly UK wages. Inexperienced: Composite Common Weekly Earnings sequence, corrected for inflation utilizing shopper 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, complete pay, utilizing CPI (seasonally adjusted). 18/2/2025 launch.
The interval from the tip of the Second World Struggle proper as much as the mid 2000s exhibits a remarkably constant file of wage progress. There are moments of financial turbulence which are mirrored in deviations from the development of steady 2.8% pa progress; a short-lived interval of extra fast progress within the late 60s and early 70s – the Barber increase – with the surplus progress unwinding within the mid-Seventies disaster. And once more, extra fast progress within the late Nineteen Eighties Lawson increase, with the surplus positive factors misplaced in weaker wage progress 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 massive – how their wages develop – the final decade and a half is by far the worst interval because the conflict. Compared, the financial turbulence of the 1970’s seems to be 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 perfect match. See When did the UK’s productiveness slowdown start? for extra particulars of the becoming method.
The top of wage progress within the UK is a direct consequence of the tip of productiveness progress. It’s value making a few factors concerning the hyperlink between productiveness progress and wage progress. 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 general financial exercise that goes to wages, moderately than rewarding the homeowners of capital – has considerably fallen, this isn’t so within the UK. For no matter motive, within the UK, over the past decade, the labour share of GDP has really elevated.
In fact, my plot of wage progress presents a single common, and it’s a good query to ask how the distribution of wages has modified with time – has this turn out to be extra unequal, with extra of the advantages of productiveness progress going to increased earners? It seems that, whereas there was a considerable improve in inequality within the Nineteen Eighties, general measures of revenue inequality have been comparatively regular since then.
The wage progress plot explains a lot about state of UK politics right this moment. Few individuals have an intuitive really feel within the summary for what productiveness progress – or its absence – means, however the sense of stalling dwelling requirements, and worse prospects for younger individuals, is all too palpable.