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Britain's low-wage economy serves as a bind on the country Britain's low-wage economy serves as a bind on the country
(7 months later)
In the US it is an article of faith among rightwing economists that falling real wages are the foundation stone of the economy's competitiveness.In the US it is an article of faith among rightwing economists that falling real wages are the foundation stone of the economy's competitiveness.
For 30 years the wages of manufacturing workers from Michigan to Atlanta have failed to grow, and 10 years ago Germany decided a copycat policy was in order. How else to compete with the Chinese? German productivity soared.For 30 years the wages of manufacturing workers from Michigan to Atlanta have failed to grow, and 10 years ago Germany decided a copycat policy was in order. How else to compete with the Chinese? German productivity soared.
In most of Europe, including the UK, real wages climbed all through the 1990s and up to the banking crash. But since 2009 that situation has swung into reverse.In most of Europe, including the UK, real wages climbed all through the 1990s and up to the banking crash. But since 2009 that situation has swung into reverse.
The Office for National Statistics has looked back at the last 10 years and found real wages, which are based on a survey of pay packets adjusted for inflation, have fallen so steeply in the last three years that they are back to levels last seen in 2002-03.The Office for National Statistics has looked back at the last 10 years and found real wages, which are based on a survey of pay packets adjusted for inflation, have fallen so steeply in the last three years that they are back to levels last seen in 2002-03.
Fantastic you might say. Now Britain's exporters can compete more keenly with foreign rivals. And you don't have to be a rightwing economist to see the wider benefits.Fantastic you might say. Now Britain's exporters can compete more keenly with foreign rivals. And you don't have to be a rightwing economist to see the wider benefits.
But driving down wages has terrible side-effects for the economy as much as it does for household incomes.But driving down wages has terrible side-effects for the economy as much as it does for household incomes.
In the absence of wage rises, consumers must borrow to buy goods and services. If they don't borrow, they don't shop and if they don't shop, producers of goods and services shed jobs.In the absence of wage rises, consumers must borrow to buy goods and services. If they don't borrow, they don't shop and if they don't shop, producers of goods and services shed jobs.
We can see from the latest US figures that wages remain fixed and borrowing is rising. Barack Obama said in his state of the union speech that he wanted to raise the minimum wage to overcome the problem. It will help, but probably not enough.We can see from the latest US figures that wages remain fixed and borrowing is rising. Barack Obama said in his state of the union speech that he wanted to raise the minimum wage to overcome the problem. It will help, but probably not enough.
The US may be storing up the next financial bubble with extra borrowing, but, in the short-term, consumption is boosted.The US may be storing up the next financial bubble with extra borrowing, but, in the short-term, consumption is boosted.
And there are other things going for the US economy, which is investing in new hi-tech equipment despite the attraction of cheap labour to do the work (a robot is expensive to buy, but increases productivity).And there are other things going for the US economy, which is investing in new hi-tech equipment despite the attraction of cheap labour to do the work (a robot is expensive to buy, but increases productivity).
In Germany, the success of exports negates the need for a domestic consumption rise.In Germany, the success of exports negates the need for a domestic consumption rise.
The UK's coalition hoped it could follow suit. Cash pulled in from selling stuff abroad would make up for the lack of domestic demand. But alas, the UK is neither borrowing nor exporting more, and is left to flounder with a low-wage economy that simply consumes enough to maintain the UK's current productive capacity.The UK's coalition hoped it could follow suit. Cash pulled in from selling stuff abroad would make up for the lack of domestic demand. But alas, the UK is neither borrowing nor exporting more, and is left to flounder with a low-wage economy that simply consumes enough to maintain the UK's current productive capacity.
That means unemployment remaining at 2.5 million people and the long-term unemployed being out of work for yet longer.That means unemployment remaining at 2.5 million people and the long-term unemployed being out of work for yet longer.
The government is under pressure to increase its own borrowing to make up for the lack of household borrowing and the fall in real wages, primarily by employing more people in the private sector to build bridges, roads and railways.The government is under pressure to increase its own borrowing to make up for the lack of household borrowing and the fall in real wages, primarily by employing more people in the private sector to build bridges, roads and railways.
The experience of the pre-crash years is that big infrastructure spending does raise wages and increase consumption. Unfortunately many of those hired are construction workers imported from eastern Europe, which has little impact on unemployment.The experience of the pre-crash years is that big infrastructure spending does raise wages and increase consumption. Unfortunately many of those hired are construction workers imported from eastern Europe, which has little impact on unemployment.
It shows there are no easy answers for the UK.It shows there are no easy answers for the UK.
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