Today, the Office for National Statistics issued a paper on wages and productivity. The findings were not good. Wages in Britain have declined sharply since 2010, while at the same time inflation has risen, causing the cost of consumption to rise. In short, people are earning less, and their costs are going up.
The Labour Party has leaped onto the report as evidence that the Government is presiding over a hollow recovery that is not being felt by the public. Chris Leslie MP, Labour’s Shadow Chief Secretary to the Treasury said this morning: “these figures show the biggest fall in real wages since records began 50 years ago.” He went on to say that: “wages after inflation have fallen by 2.2 per cent a year since 2010.”
In this, Leslie is correct—but this analysis ignores much. Wage growth has been falling since long before the present government came to power and before even the financial crisis struck in 2008. It is certainly fair to fault the Government’s marshaling of the economy in this recovery phase. But any argument of substance must take into account the problem of wage stagnation in the long-term.
Source: the Office for National Statistics
The above chart from today’s ONS paper shows wage growth going back to 1964 and the rise and fall of the red line tracks the wage price spirals of the 1970s, the great inflation of the late 1970s that was attacked so aggressively by Paul Volcker, the Chair of the Federal Reserve. And then, starting in the early 1980s there begins the period commonly known as “The Great Moderation,” a slab of some 30 years in which growth was steady, inflation was kept down and economies, including that of Britain, were free from volatile systemic episodes.