wages
Wage growth is a key factor in determining living standards, aggregate demand and inflation. If wages increase faster than inflation, then households will be able to afford more goods and services. Real wage growth = nominal wage growth – inflation.
In the post-war period, apart from short-lived recessions, real wage growth has been positive, growing at a trend rate of roughly 2%
2008-14
This period was one of the longest periods of falling real wages. It was due to:
Great recession
Depreciation in Pound Sterling, raising price of imported goods
Rise in…
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…
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…
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…
