wages

UK wage growth

UK wage growth

Wage growth is a key factor in determining living standards, aggregate demand and inflation. Since the great recession of 2008, nominal wage growth has fallen behind the headline inflation rate causing a significant drop in real wages. Research from the ONS, stated that in 2012 real wages have fallen back to 2003 levels. (real wages fall) Between 2010-12, there has been an annual average drop in real pay of nearly 3%. Between 2014 and 206, inflation has fallen and wage growth picked up. This has led to positive real…

Economic growth with falling real wages

Economic growth with falling real wages

The UK recovery paints an unusual situation. We have both positive economic growth and falling real wages. How can we have economic growth with falling real wages? Real wages are not the only source of economic growth. We can see growth from other components of AD – I (Investment), G (Government spending) plus net exports (X-M) Also, it is possible for consumer spending to rise despite falling real wages (at least in the short term). For example, if spending is financed by borrowing or declining savings ratio. Consumer spending could also be…

Effect of minimum wage on AD/AS

Effect of minimum wage on AD/AS

Readers Question I realise that at the maximum wage, (minimum wage) for labour – Qty supplied would exceed quantity demanded. Therefore, from the labour market diagram there is an obvious fall in Qty of labour, given that there would be an unwillingness to supply labour at the lower wage rate. Diagram showing minimum wage above the equilibrium I think you mean minimum wage. It is a minimum wage that causes excess supply of labour and lower demand. If labour markets are perfectly…

Wages Declining as a Share of National Income

Wages Declining as a Share of National Income

The ILO recently produced their growth and wages report for 2012/13. This suggested that across the developing world, labour markets are being characterised by falling real wages and a decline in labour’s share of national income. In particular: Real wage growth has been flat – even negative in the past few years. There is an increasing gap between productivity growth and wage growth. Wages are not rising along with productivity. Wages are becoming a smaller share of national income.  In 16 developed economies, labour took a 75% share of national income in the…