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The UK will be stuck with low wages until productivity goes up | Torsten Bell


In the good old days, the fields were green, we’d never heard of Covid and pay packets grew. The last point sounds like a fairytale because stagnant wages have defined the UK’s post-financial crisis economy. Pre-pandemic, we’d only just got earnings back to where they were 12 years before. This living standards austerity means that the 15 years from 2007 to 2022 are forecast to be the worst on record for household incomes: up just 9%, compared with a pre-financial crisis average of almost 50% per 15 years.

Some think the lesson from this catastrophe is that we shouldn’t care about economic growth because it has stopped feeding through to workers’ wages. When I’m in a good mood, I think that take is confused. Most of the time, I think it’s dangerous and idiotic.

The real reason our pay has stagnated isn’t that growth hasn’t fed into wages, it’s the lack of growth in the first place. This is really clear in the UK as our productivity and business investment have flatlined. New research reminds us that the link from productivity growth to pay rises is still there across the Atlantic: in the US, a one percentage point increase in productivity growth leads to around 0.7 percentage points faster wage growth (0.5 per cent in Canada). The authors rightly note that higher inequality can weaken this link, creating gaps between typical pay and productivity. It’s not complicated: our new year resolutions should be to get productivity growth up and inequality down.



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