DESPITE headwinds from the continent, Britain’s economy continues to do pretty well. GDP has exceeded forecasts so far this year, and in the second quarter was 3.1% larger than a year ago. The economy has at last surpassed its pre-crisis peak. Yet working Britons are not feeling the benefit. Real wages have fallen for seven consecutive years, and are 6.9% below their 2007 level. Britain is experiencing its longest period of pay stagnation since records began in 1855 (see chart).
On October 18th, 90,000 workers took to London’s streets to join a protest organised by the Trades Union Congress (TUC). Participants bemoaned not just pay stagnation, but also inequality: FTSE 100 chief executives now typically earn 120 times as much as their average employee, up from 47 times as much in 2000, according to Incomes Data Services, a research company. On October 20th the Social Mobility and Child Poverty Commission, headed by Alan Milburn, a former Labour minister, claimed radical changes are necessary to prevent Britain becoming “permanently divided”.
As well as pay rises for workers, the TUC wants more companies to pay the living wage—£7.65 ($12.30) an hour, or £8.80 in London—to their lowest earners, and a crackdown on “excessive” executive pay. Mr Milburn would exempt the working poor, who often have their wages topped up by the state, from further public-spending cuts. That will be difficult. State pensions, which make up two-thirds of the welfare budget, have already been protected from austerity.
Low pay reflects Britain’s dismal record since the recession when it comes to productivity: output per hour worked remains 2.2% below its pre-crisis peak and 16% below its pre-crisis trend. The recession caused less unemployment than elsewhere, but real wages fell instead as productivity tanked. That is fortunate in some ways, as unemployment has acute and concentrated costs. But those in work are now badly in need of some respite.
Possible explanations abound for the curious trend. Britain has more liberal labour markets than most European countries, which may have meant companies found wages easier to cut, keeping employment high. Some sectors, such as financial services, may have mismeasured productivity before the crisis. And low investment probably contributed too.
There is hope in some quarters that low inflation—which fell to 1.2% in September—will ease the pressure on budgets. To the extent that small price rises represent external factors, such as cheaper commodities, workers benefit. However, below-target inflation partly reflects weak demand, which also holds down wages. And if inflation expectations fall, the real interest rate—the cost of credit accounting for inflation—rises. That squeezes borrowers and holds back demand further. Fortunately, British inflation expectations tend to be well-anchored near the Bank of England’s target; they did not shift much during the high inflation of 2011, for example.
One mooted explanation for low wages is particularly controversial. UKIP, Britain’s insurgent anti-EU party, claims that immigration from Europe is holding down pay. Evidence on this is mixed: conflicting studies have separately found both a small increase and a small reduction in average wages as a result of migration. But there is better evidence that its effects are unequal; the lowest-paid workers, who face the fiercest competition from migrants, find their wages held down by the arrival of foreign workers. Higher earners are more likely to benefit. Division, it seems, is rife. With an election around the corner, politicians are sure to take notice.
Would appear the constant rising of wages over the decades has finally come to an end, and is now starting to flatline. Not jusk the UK, but the US ,Euro and Australia .
Where do wages go from here ?
Well they have risen rapidly over the decades, but are now uncompetitive with very cheap foreign labour. As a result, jobs are dissapearing and wages can no longer be pushed higher as a result. Wage rises from here would just result in more job losses and buisiness closures,yet the government has no problem jacking theirs up a shitload everytime, and sacking thousands of others to do so.
So not only can wages be pushed any higher, but they cannot even be sustained at current levels because of the vast disparity between western wages and dirt cheap Chinese wages making the same products. This is why wages are falling in inflation adjusted terms, WAGES CAN NO LONGER KEEP UP WITH INFLATION, and the vast disparity in wages will ensure the third and final part, where wages fall in nominal terms. We saw that here recently, where coca cola dropped wages by 38% for new workers coming on doing the same job. And current workers having two year wages freezes. Again I will point out here how the morons robbing our pay packets and income have no problems jacking their own up.
So after decade after decade of rapid wage rises, wages have peaked, flatlined and dropped ,in both inflation adjusted terms and nominal terms seen with coca cola just recently.
The wage rise thing is over, just one of the reasons the US and Euro will not recover after six years, even with rates jammed at zero for the same period and trillion after trillion.
So this vast disparity in wages and the rise of cheap asian labour over the last decade is a major problem for western economies, as clearly seen by the facts.
To show the vast disparity may be an eye opener for some, especially when Australia is highlighted as it stands out on its own.
From stats we have seen minimum wages in China could be as low as $1.00-$1.50 an hour. In the US its $7.25 and hour, the euro is about $9 an hour and the UK is either $6 or $9 an hour. Our minimum wage here is $17.25 an hour( a bubble bigger than any when it comes to wages).
So on average,our wages are double that of the US,euro and UK.
So looking at the US for a moment , the wages disparity between their wages and Chinese wages is in multiples. Where US wages are six or seven times higher. For US wages to have the same advantage over Chinese wages that the Chinese wages now have over their wages, the US would need to drop their wages to around 25cents and hour . That's the advantage the Chinese now have over other wages.For Australia is would be far different again.
But if the US , euro and UK face troubles, we face more on the wages front. Our wages are double all of theirs, and they cannot compete with cheap foreign labour.Our wages would need to drop 50%, just to compete with all of theirs and be level. Our wages would need to drop 75%, for us here to have the advantage they now have over us. That would make our wages half of theirs instead of the other way around now.
Do you think we would be going better here if our wages were half theirs instead of double like they are now.So even if we did drop our wages by 75%, they would still be three or four times chinese wages.
38% less pay is not a little drop, its an absolute smashing.
Probably better than no job, that many will face once ford and holden shut shop.
With all this record building going ,12 year high unemployment recently, and wages dropping hard for the first time in history, I wonder just how cheap these rents will become.
38% less pay is not a little drop, its an absolute smashing.
Probably better than no job, that many will face once ford and holden shut shop.
With all this record building going ,12 year high unemployment recently, and wages dropping hard for the first time in history, I wonder just how cheap these rents will become.
We’re now facing a much more subdued national income growth than we have over the past 10 years and I suspect the Australian people already feel it. I think you can see, in the different attitudes to debt, and really, the different attitude to saving and to debt that has been with us for five years now. I think the households actually responded quite quickly in many senses to the changed environment there, and I think the business community actually took a bit longer to work out that the customers had changed. I think the other thing that’s happening is, you’re seeing pretty subdued growth in real wages right now. Wages growth in nominal terms have slowed, to some extent that was expected, but it has been quite responsive to the softer labour market. But the deeper thing that’s happening is, real national income is growing more slowly because the terms of trade aren’t rising, they’re in fact falling a bit. That’s already showing up in slower growth in real wages, as far as I can see.
So I think the community is already sensing what's happening, even if they may not make the link directly, the terms of trade have done something different, and that’s why my real wage is not growing as fast, even though that is, in a sense, the reason. They’re maybe not making that connection, but my guess is they’re feeling the effect. So it will resonate, I think, if the leadership of the country — which includes the RBA — can help to explain to people, this is what’s happening, this is why it’s happening and this is what we need to do, I think that will resonate, actually.
We’re now facing a much more subdued national income growth than we have over the past 10 years and I suspect the Australian people already feel it. I think you can see, in the different attitudes to debt, and really, the different attitude to saving and to debt that has been with us for five years now. I think the households actually responded quite quickly in many senses to the changed environment there, and I think the business community actually took a bit longer to work out that the customers had changed. I think the other thing that’s happening is, you’re seeing pretty subdued growth in real wages right now. Wages growth in nominal terms have slowed, to some extent that was expected, but it has been quite responsive to the softer labour market. But the deeper thing that’s happening is, real national income is growing more slowly because the terms of trade aren’t rising, they’re in fact falling a bit. That’s already showing up in slower growth in real wages, as far as I can see.
So I think the community is already sensing what's happening, even if they may not make the link directly, the terms of trade have done something different, and that’s why my real wage is not growing as fast, even though that is, in a sense, the reason. They’re maybe not making that connection, but my guess is they’re feeling the effect. So it will resonate, I think, if the leadership of the country — which includes the RBA — can help to explain to people, this is what’s happening, this is why it’s happening and this is what we need to do, I think that will resonate, actually.
Well done Glen, I thought you would deny wages are falling as many of our uneducation and uninformed bulls like sydneyite do.
Gets a bit hard when cold hard evidence is shoved in ones face.
People are not adjusting Glen, they have no choice .This is just the beginning of a mass wage correction. Where our wages halving would still make them more than the US.
The debt ponzi of the western world was always coming to an end, clearly shown six years on. But what has exaggerated this and made it worse is the rapid raise of dirt cheap asain labour over the last ten years. This is what helped the US and Euro into decline and made them unable to get out out of it.
It is the double whammy, where the debt ponzi was already reaching its llimits but then along came the rapid rise of China and their dirt cheap labour to put the final nail in their economic coffin. Our position here is worse because our wages are more than double the US or euro, and even more multiples over Chinese wages than theirs are. This is shown in that we now have both higher adult and youth unemploymentthan the US or Euro.
This is just the beginning Glen , and our position is worse than the US or Euro when it comes to this issue.
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