Living standards and economic growth; a depressing tango

At the risk of sounding like an anally retentive stat obsessive, I found some interesting figures about real wage growth in Britain, or its absence, on Saturday and put them together with statistics on GDP growth (alright I admit I’ve got a problem but it’s one way to spend your weekend).

Both sets of figures are from the Office for National Statistics. Real wages mean the increase or decrease in the value of wages taking account of the effect of inflation.

	UK GDP growth %	UK real wage increase %
1970-1980	2.55	2.9
1980-1990	2.67	2.9
1990-2000	2.22	1.5
2000-2010	1.82	1.2
2010-2014	1.32	-2.2

What’s interesting is that wage growth, and now wage decline, has tracked GDP quite closely, and GDP has fallen substantially since the end of the ‘80s and since the ‘60s. According to ONS figures, annual growth in Britain averaged 3.27% from 1960 to 1970. The figures are quite kind to Margaret Thatcher, it should be said, since the second Thatcherite recession began in the first quarter of 1990 when she was still Prime Minister.

The drop in the increase in wages was very definitely apparent in the 1990s and 2000s when virtually no-one thought there was a problem. Now there is wage decline, an awful lot of people have noticed the problem. The conventional liberal-left explanation is that Thatcher’s war on the unions and the decline in collective bargaining has belatedly fed through to how well employees are paid. I’m sure this is a factor – the precipitous drop in real wage increases from the 1980s to the 1990s, has doubtless a lot to do with the “Thatcher effect”. But that is not the whole story. Wages have faltered as growth has declined. Frances O’Grady, general secretary of trade union representative body, the TUC, said in response to the wage figures that “average pay rises have been getting weaker in every decade since the 1980s, despite increases in productivity, growth and profits”. But productivity and growth have also been getting weaker. I believe there is hardly any chance of the UK economy turning things around and returning to the growth levels of ‘60s, ‘70s or ‘80s. In those circumstances, real wages will either continue to decline or, at best, show slight increases.

The figures are evidence of an economic system in decline and the prospects for most people, while TINA is securely ensconced in the political consciousness, are not enticing. Consumer debt, which has trebled since the early ‘90s in the context of faltering wage growth, is likely to grow even larger, leading to further economic tremors.