Why Do People Not Notice Economic Growth?

Readers Question: why does economic growth not get noticed by the man on the street?

  • Recently, the ONS released a report saying that real wages were 62% higher than in 1986. This is the result of sustained economic growth. (Real wages take into account inflation.)
  • In April 2011 the average full-time employee in the UK earned around £12.62 per hour excluding overtime.
  • This is a monetary (nominal) increase of 226% since 1986 when the average wage was £3.87 per hour.

Inequality of Real Income growth

  • The top 1 per cent had the biggest increase between 1986 and 2011, at 117%
  • The top 10 per cent saw an increase of 81%
  • The bottom 10 per cent had a 47 % increase.
  • The very poorest did better, with the lowest 1 per cent having a 70% increase.

 

However, in the period 2007-11, all income groups have seen a fall in real wages as nominal wage growth has failed to keep up with inflation.

real GDP

If we asked people do they feel better off than 1986, it is hard to know what people would say. I’m sure some would feel better off, but many may reply they don’t. Why don’t people notice economic growth? Some possible reasons:

  • Economic Growth and living standards. Economic growth measures the increase in real GDP (real output, real incomes). However, GDP  is often a poor reflection of living standards and peoples sense of well being. For example, despite rising real incomes, people may not feel as well off. This could be because:

Econ Growth and Unemployment Stats – Countries with Own Currency

Readers Question I was wondering if you have any graphs plotting UK GDP and Unemployment against other economies which have monetary independence and their own currency. I often see graphs comparing the US with the UK. Are there any which include Sweden, Norway, Switzerland and other countries?

econ-growth-table-aus-nor-swe-swit-uk-us

click to enlarge

Economic growth rates for selected countries.

  • Australia has weathered the global recession well. Helped by strength of its commodity export market.
  • Sweden experienced one of the deepest recession (-5.0% in 2009), but also one of the quickest recoveries with very strong growth since 2010.
  • The Eurozone went back into recession in 2012, and the growth forecasts for 2013 may prove over-optimistic.

Read moreEcon Growth and Unemployment Stats – Countries with Own Currency

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