The UK catches US bird flu: nasty business

Well not bird flu actually, but decoupling of median incomes and productivity growth. About as nasty an economic development as one could imagine.

FROM THE OECD INSIGHTS BLOG

Do workers reap the benefits of productivity growth? 
In the last twenty years of the 20th century, each pound of UK GDP growth was accompanied by around 90 pence of median wage growth. From 2000 to 2007 that figure fell to just 43 pence. This bears worrying similarities to the experience of the United States; with US median wages now flat for a generation, the pay of Americans in the bottom-half has decoupled from productivity growth. A new report from the Resolution Foundation by Professor John van Reenen and Joao Pessoa of the London School of Economics looks at how the relationship between productivity and compensation for workers has changed in the UK and in the US, building on similar work carried out in the US by Jared Bernstein. The report defines two types of decoupling, each of which tells a very different story. Read more

6 thoughts on “The UK catches US bird flu: nasty business

  1. But if we only wait a decade or twenty-three, we should start seeing trickle-down effects and the problem should resolve itself!

  2. Isn’t this just efficient pricing of labour? The desired result of targeting inflation rather than full employment?

  3. So economists must be pretty embarrassed by these poor results. Seems like quite a few things aren’t working out to plan. The unions have less power, employees are more “flexible”, outsourcing, privatisation, population growth and reductions in capital gains tax are making the world a better place surely those things can’t possibly be keeping wages from growing?

  4. If your statistical distribution is skewed, then the mean will float higher than the median. GDP is an aggregate, so from a statistical perspective it behaves like a mean. Thus when median grows slower than the mean, it merely demonstrates that the distribution is skewing more that it was.

    In the case of the UK, the old high-value jobs in coal and steel that were the cornerstone of British success 100 years ago, simply cannot sustain the unionised high wages for what is relatively low-skill labouring work. It probably started with the head-butting contest between Thatcher and the coal unions, in which both sides lost. However, the UK steel industry is slowly but surely following the footsteps of coal, without the fanfare, and without the showdowns:

    Tata (Indian owned) mothballed Llanwern steelworks in Wales.

    Tata closed Teesside Cast Products — now looking like re-opening under Thai ownership, Sahaviriya Steel Industries.

    Tata introduced mechanisation to Scunthorpe steel, reduced the workforce, abandoned the idea of bulk produce in order to focus on high-grade output.

    Thamesteel in Kent (on Sheppey, independent?) went bankrupt and ceased trading.

    I’m sure there are others, those are just the ones I happen to have been reading about.

    Ultimately, high skill engineering and automation are the only ways expensive Western countries can compete, as well as knowledge jobs and other high value economic activity. The globally competitive marketplace currently makes it very cheap and easy for bulk production and labour intensive activity to happen in India, China, SE Asia, etc. For the people in those countries it has been a massive boon, brought them out of subsistence agriculture and into the modern world.

    The one thing you can’t do with technology is push the Djinni back into the bottle. The third world is catching up with the 1st world 20th Century and they are very unlikely to change their minds.

    You might reasonably argue that Tata is an unethical global mega-corp (and many people do, avoid Tetley Tea if you think it helps) and no doubt the Indians learned a lot about how to be successful from the British East India Company. Here’s one such grumbler:

    http://3.bp.blogspot.com/_rqH4fUbko2U/SyjnzGkUI8I/AAAAAAAAPjM/TJYczLE15cs/s1600-h/TataSteel.jpg

    However, for every poor village getting steamrollered, other workers are bringing home regular pay, and the cost of steel products is falling. Measuring Australian wages by counting tools, homewares, consumer electronics, computers, Internet access, and available services — makes us the most wealthy generation that has ever been in this country.

    That said, a cheap frying pan isn’t much use if you can’t afford either the steak to cook on it, or the electricity to heat it up, but we haven’t quite hit the skids yet, and measuring wellbeing is pointlessly subjective. I’m not expecting us to reach a stage where everyone stops grumbling.

  5. One of the interesting things to note is who formed the govt in the relevant periods! Seems like it might not be a right-wing plot after all!

    I wonder whether one of the issues is that it can take a while for workers to figure out how to grab the income gains derived from capital. Didn’t the same thing happen at the end of the 19th century?

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