The high growth – low wage puzzle.

Education, Economy and Society

The fact that the relatively high overall growth of the UK economy has not led to a corresponding increase in wages – the  latest ONS figures now showing real wages are falling  (http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/august-2014/index.html) – has perplexed policy makers and, for the moment at least, put a brake on an interest rate hike. Wages excluding bonuses between April and June 2014 are barely 0.6% higher than a year ago (http://www.bbc.co.uk/news/business-28325361). This compares to a pre-downturn average of 2.5%. Whereas the economy has now returned to its previous level of output, regular pay has fallen 5.25% during the last four years.

Changes in wages often ‘lag’ behind other changes in the economy but there’s little sign of any catch up, with the Bank of England upgrading growth predictions but now downgrading its prediction for wage growth (http://www.bbc.co.uk/news/business-28768450) despite estimating that the level of spare capacity…

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