Salary growth, or lack thereof

There’s been some bad and unsurprising news about Britain’s total lack of wage growth in the last 10 years. It’s worth mentioning here that Britain’s wage growth in this time frame has been worse than every single other EU country except Greece. Countries like Spain with double digit unemployment have fared better than us. That’s astonishing.

It doesn’t make a lot of sense that immigration suppresses wages on a broad scale. It might do in isolated cases, like the infamous Sports Direct villages (which are the reason that I never buy any running gear from Sports Direct), but in general the number of jobs will scale with the number of economically active people in the economy. The idea that immigration causes wage suppression can be restated as countries with small populations have higher wages, which is obviously incorrect.

If salaries have stagnated as badly as the figures suggest then the following must be true:

1. There is too much competition in the labour market suppressing wages, and/or
2. The jobs people are working are not producing much economic output and do not justify higher wages

Both of these are probably true to some extent.

The first because for competition to exist in a labour market the average person must have a credible alternative to his job, otherwise s/he necessarily accepts the salary offered to her/him regardless of what it is. The Tories have spent the last six years ensuring this to be the case, by stripping away benefits to get more people into work without focusing the same amount of effort on increasing demand in the economy, which would create jobs. This increases competition for jobs while simultaneously decreasing the freedom of a jobseeker.

The second is likely true because the UK’s productivity, i.e. wealth created per hour worked, is dire. We are well below most European countries which means we have to work more hours to produce the same amount of money as them. It is important to stress that productivity has little to do with how lazy or hard working a worker is. Time is a finite resource and more productive employees use it to do things that give them a greater monetary return. Women in remote African villages who walk miles to fill heavy jugs of water are some of the hardest workers in the world, but they are not productive – they spend an entire day’s effort on things that take mere seconds in developed countries. The analogy here is that British workers are forced to expend their time doing things that workers in other countries don’t have to do.

What causes this is probably a culture of bad management prevalent in the UK which denies people the equipment and conditions they need to do their jobs effectively through reluctance to invest and simple incompetence. Possible examples of this in a modern world are inadequate computer/network hardware reducing a worker’s efficiency and pointless meetings occupying their time.

The failure to address either of these problems is a staple of Conservative economic policy in the last six years. The Autumn statement gave no indication that any of this is going to change quickly. If people think brexit will bring about improvements on this front, they are likely to be disappointed.


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