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UK Economy: The Economics of Falling Real Wages
1st May 2014
The prospects of significant wage increases for typical UK workers are bleak, according to Professors David Blanchflower and Stephen Machin writing in the Spring 2014 issue of CentrePiece magazine from the London School of Economics.It is quite clear that the economy is still well below full employment and there is a large amount of slack in the labour market, they say. There is little evidence of widespread skill shortages, which would push up wages; and public sector pay freezes with continuing redundancies continue to push down on workers’ bargaining power.
Firms have started to perform better so their ability to raise pay levels may have increased slightly – but so far there is no evidence of any change in their willingness to pay. It stretches credulity to believe that all of a sudden bosses will hand over pay increases to their workers when they have shown no inclination to do so for years.
The researchers note that there have been historically unprecedented falls in UK real wages since the start of the Great Recession. What’s more, the long US experience of stagnant real wages (median real weekly earnings in the United States in 2013 were at about the same level as in 1979) might be viewed as a warning sign for the UK.
The full report is available here:
http://cep.lse.ac.uk/pubs/download/cp422.pdf
News update: Guardian (August 2014) First fall in UK wages since 2009 – what the economists say
Video update (Financial Times, August 2014)
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.