Mitchell, B. (2014) “The UK recovery is a false dawn“, Bill Mitchell Blog: Modern Monetary Theory … macroeconomic reality, 18 October.
A few weeks ago (October 1, 2014), I wrote in this blog – British economic growth shows that on-going deficits work – that the British Chancellor was overseeing an expanding fiscal deficit and public debt ratio, which despite the rhetoric to the contrary, was supporting growth and helping private households increase their saving ratio. The national accounts and public finance data could not support the claim that it was austerity in the UK that was promoting growth. But in drawing that conclusion, I certainly didn’t want to give the impression that the conduct of macroeconomic policy in the UK was appropriate. The point was that growth, albeit tepid, was occurring in the UK and it was not in an environment where the fiscal deficit was being cut. The fact is that the UK economy is in a parlous state and such that the word recovery is a totally misleading descriptor for what is happening.
I have been examining labour productivity trends in various nations lately as part of some research I am undertaking.
The evolving relationship between labour productivity (how much output is produced per hour worked or person employed – these are different ways of thinking about it) and real wages (the purchasing power of the monetary wages that are paid to workers was one of the crucial leading indicators that allowed Modern Monetary Theory (MMT) proponents to foreshadow the GFC long before the signs were more obvious.
I have written before about way the deviation of real wages from output per hour worked or labour productivity. The increasing gap between the two with real wages lagging behind labour productivity has been a characteristic of the neo-liberal era, as a result of concerted attacks on the capacity of workers to gain real wages growth (legislative, market-based – that is, persistent underutilisation of labour, and self-destruction by many unions).
In most advanced countries, the gap started opening around the 1980s and has led to a major redistribution of real national income towards profits without a commensurate surge in private sector investment in productive plant, equipment and buildings.
What happened to the gap between labour productivity and real wages? The gap represents the increased share of profits in national income profits.
Relevant posts:
- Möller, Α. & Oliver, Τ. (2014) “Greater attention should be paid to the consequences of a ‘Brexit’ for the EU and other states around the world, not just the UK“, LSE EUROPP Blog, 01 September.
- Favell, A. (2014) “The UK has been one of the main beneficiaries from free movement of labour in the EU“, LSE EUROPP, 01 July.
- Knott, E. (2014) “Georgia, Moldova and Ukraine’s signing of EU co-operation agreements marks their transition from ‘post-Soviet’ to ‘European’ states“, LSE EUROPP, 30 June.