Recession prompted 'unprecedented' fall in wages
Wages have fallen more in real terms in the current economic downturn than ever before, according to a report.
On top of the rising cost of living, one third of workers who stayed in the same job saw a wage cut or freeze between 2010 and 2011, said the Institute for Fiscal Studies (IFS).
"The falls in nominal wages... during this recession are unprecedented," said Claire Crawford from the IFS.
This may explain why unemployment has not been higher, she added.
Economists have puzzled over the fact that, since the recession began in 2008, the UK has seen the longest and deepest loss of output in a century - and yet employment has dropped by much less than in previous recessions.
The conundrum is known as the "productivity puzzle".
"Lone parents and older workers, for example, are not withdrawing from the labour market as they have in previous recessions, which may in part be driven by changes to the welfare system," the report said.
"This means that workers may be experiencing greater competition for jobs and hence may be more willing to accept lower wages than before."
On Tuesday the TUC said that total pay in some parts of the UK has shrunk by more than 10% since the start of the downturn in 2007. It said that north-west and south-west England had seen the sharpest cuts - 10.6% and 10.1% respectively.
My view:
Wages are very sticky, in the sense that they do not easily decline over time.
Only a severe deflationary environment can force them down.
So while central bankers try to re-inflate a bubble in assets and inflation, real wages are shrinking in many parts of the western world.
As the bias of the economy remains toward deflation despite unprecedented measures by central banks, it appears they are failing to re-inflate to support the welfare state.
Once the stock market realizes this, we should see a move again to bonds and especially precious metals.
Comments
Post a Comment