Picture: C Dempsey
How much did your parents earn when they were your age? Unless you buck the trend, the answer is less than you earn. But now, for the first time in decades, it’s not clear if the same will apply to your children. From the US to Germany, living standards for typical households had stopped rising long before the economic downturn. It is time to step back from the anxieties over cuts to ask: have we stopped getting richer?
Even posing that question may feel counter-cultural. Our expectations have been shaped by the rhythm of late 20th-century capitalism: occasionally there are recessions and incomes fall, but then recovery comes and wages rise. Put simply, it has long been safe to assume that national economic growth leads to widespread personal gain.
But recent economic history complicates that assumption. In the five-year period before the downturn, while the overall British economy grew by 11 per cent, average wages were already flatlining. Disposable income per head fell in every English region outside London from 2003 to 2008. During a supposed national boom time, Britain’s households were drawing a bust. A half-decade trend doesn’t, of course, put us on an ineluctable path towards longer-term stagnation. But it should shake us out of complacency.
We only need to look at America to see how it is possible to get stuck in a cycle of growth without prosperity. The average US worker today is doing no better than their parents, with little or no growth in incomes since around 1973. In the same four decades, US GDP more than doubled. In fact, if incomes had kept track with GDP per capita—as they did from 1945 to 1973—the average American household would not now live on $50,000 but $80,000. Of course, numbers like this hide many complexities: overall employee compensation, including health insurance, shows a slightly better picture than wages, and women have done better than men. But the overall trend is as clear as it is alarming.
Some respond to such statistics by comforting themselves with a tale of American exceptionalism; of hyper-capitalism finally getting its comeuppance. The evidence suggests otherwise. The supposedly gentler Canadian system has seen a similar stagnation in middle wages since around 1980. Nor is this just an Anglo-Saxon phenomenon; in Germany—the bastion of the continental model—the real wages of ordinary workers have been flat for nearly ten years.