That’s excellent Tim.

“leading economies such as the UK, Germany and Canada have seen median wages either remain stagnant or falling during long periods of growth, prior to the 2008-09 global recession.”

“Of course, we were one of the loudest – sometimes loneliest – voices in calling for a National Minimum Wage, which has disproportionately benefited women, so there’s much for us to be proud of.”

So the period when the NMW was introduced is correlated with stagnant incomes for the lower paid. And you call this a sucess?

Tell me, what does failure look like in your world?

Usual anti-NMW crap from TW. When will the right admit that they got it wrong over the NMW? Does the fact that even Cameron wouldn’t dare scrapping it say something?

Seems Tim doesn’t understand what “Median” means, he is confusing Median wages and Low Wages. Median are not low wages, they are average, middling wages. (Median meaning middle) . So they are not directly affected by the minimum wage. If you are on a median wage (what, somewhere around £500 a week) you are way above minimum wage levels. The minimum wage obviously has raised wages of the very low paid , but middle wages have stagnated – so they need a different solution – like stronger collective bargaining.

The median is calculated in this way -if there were 100 wage earners , you line up all their pay packets in order of size , lower paid on one side, higher paid on the other. And pick out the middle one, the 50th – that’s your median.

In pay it is generally accepted that the median is a better average measure than the arithmetic mean (the average where you add up all the money and divide it by the number of pay packets), because the arithmetic mean – what people usually mean by average, can be easily distorted by one or two very high pay packets. So if 99 people earn £30 k or under, but one person earns £200,000,0000, the arithemetic mean will look unusually high, whereas the median will not be distorted by one big pay packet.

(Just to make clear, commenter Tim Worstall seems to have trouble understanding what Median is, not authror Tim Page – too many Tims !)

The fundamental problem is we are in a period of ‘ Great Stagnation. ‘ The returns to labour that is not highly demanded have been pitiful because the returns to capital have been pitiful or nonexistent. Senior management remunerations etc are not necessarily returns to capital. If you bought the FTSE twenty years ago then you made almost nothing in twenty years. The immiseration of capital eventually caught up with the S&P.

http://yglesias.thinkprogress.org/2011/02/the-immiseration-of-capital/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+matthewyglesias+%28Matthew+Yglesias%29

http://www.economist.com/blogs/freeexchange/2011/01/growth_2

This income stagnation is probably the flip side of the technological stagnation.
Yet, in the midst of technological stagnation people generally believe that we have made large leaps forward. However, a mobile is still just a phone. A Dyson is still just a vacuum cleaner. A flat screen TV is still just a TV. A faster car with more accessories is still just a car. An electric train has just the same function as a steam train. We invented and innovated them generations ago. Flying from London to New York takes as long as it did 40 years ago. The internet has a large consumer surplus and little else. The PC is usually thought to provide large productivity gains. However, the public services have PC’s without any productivity gains. The advances that allowed people to live longer were about water and sanitation and medical advances to defeat childhood illnesses and were made generations ago. There has been nothing to compare with the transformational impact of the likes of electricity, penicillin, motor cars and the transport of goods by containerisation for decades.

What is happening in agriculture is usually a good bellwether for what is happening elsewhere in economies. Here we find that the average annual growth in crop yields has been in decline for forty years. We really are not getting better at growing things in the advanced world. Kids leave university predominately with the same knowledge that was known decades ago. Kids were leaving university in 1900 with knowledge that was unknown a few decades previously.

Only our scientists, inventors and innovators will advance us. Good luck with looking to politicians as I think you will be disappointed. I really do not know if you can get a higher return to the labour in the categories cited. A union renaissance seems an unlikely scenario.

Collective Bargaining has brought us to where we are now.

Why would the future be any different?

Just asking.

@6 BobB

I see, everything is down to collective bargaining. Thanks for the incisive insight.

@7: “I see, everything is down to collective bargaining. ”

And that is not what I’m saying – which is that collective bargaining has been going on and it evidently hasn’t had much impact on promoting or even defending the earnings of low and middle income earners so it’s reasonable to ask why collective bargaining is likely to be more successful in future. Btw wasn’t the statutory minimum wage supposed to be doing something for the low paid?

Could it be that low and middle income earners have lost out because of persisting skill shortages? The graduate earnings premium seems to be holding up
and the unemployment rate of young graduates is lower than for non-graduates:

For young people aged 21 to 24 who have left education, having a degree means unemployment is less likely than those without a degree. In the third quarter of 2010 the unemployment rate for those aged 21 to 24 with a degree was 11.6%, compared with 14.6% for those without a degree.
http://www.statistics.gov.uk/cci/nugget.asp?id=1162

@OP, Tim Page: “The report points out that whilst less chronic than in the US, where median earnings have been stagnant for a generation, leading economies such as the UK, Germany and Canada have seen median wages either remain stagnant or falling during long periods of growth, prior to the 2008-09 global recession.”

Isn’t it the case that in the UK and Germany, employers and workers have agreed flat wages or pay cuts in order to keep manufacturing businesses running and workers employed? These agreements have been pretty significant in Germany where manufacturing is a greater proportion of the economy and where manufacturing exports are driving growth. Long sighted compromise by both parties is starting to work in their favour.

@5 Richard W: “This income stagnation is probably the flip side of the technological stagnation. Yet, in the midst of technological stagnation people generally believe that we have made large leaps forward.”

This ties in with Nick Carr’s argument that “IT Doesn’t matter” http://www.nicholasgcarr.com/articles/matter.html

My belief is that IT fails when it is used as a tool for managerialism rather than making stuff. There is a bizarre (to me) faith that systems can be improved and that investing in workers does not matter. Expensive management reports are presumed to be a substitute for walking around and understanding the business and customers.

And when the TUC argue for collective bargaining, I think that they are making the case for a better system which cannot exist. Systems only work when they can be disassembled into human manageable components.

Of course, in conducive market circumstances, collective bargaining can be hugely successful:

Tube drivers earn £10,000 a year more than nurses – With an annual salary of £40,000 for a 35-hour week a London tube driver earns £10,000 a year more than the average London nurse.
http://www.telegraph.co.uk/news/uknews/road-and-rail-transport/5496579/Tube-drivers-earn-10000-a-year-more-than-nurses.html

As for IT, transportation authorities in other cities appeciated the significance of the potential crunch that subway and metro trains drivers have long ago. Numerous subway systems have automated trains:
http://mic-ro.com/metro/driverless.html

@11. Bob B: “Of course, in conducive market circumstances, collective bargaining can be hugely successful”

How do you measure success, Bob? A fair wage for the worker or a sustainable cost for the business?

—
Driving a train is a responsible job, one requiring physical fitness, observation skills, an alert mind. As you note, a computer controlled train can mimic some human behaviour. But a human being can make decisions when the system breaks down and there are no communications.

A train driver is paid £30,000 for the every day job and £10,000 for extraordinary functions.

Comparing nurses and train drivers thus becomes problematic. A train driver works alone and is alone when technology fails. A nurse is typically a member of a team (acknowledging that in extremis, a nurse will have to act alone). So don’t compare the jobs. And kick out all of the Human Resources bull about measuring job roles and paying a salary according to the job role.

Out of interest how much are surgeons paid?

@13 – consultant – between £75-£100k for NHS stuff and private is obviously dependent at what specialism and ability.

@13. Mr S. Pill: “Out of interest how much are surgeons paid?”

“Surgeon” is not a single job role. The word can be used in many job titles, from the practitioner who removes a benign tumour at your GP practice to the heart swappers.

At work I was initially surprised to read a flier announcing an inaugural lecture from a professor in medicine. He’d been teaching and researching for 15 years, a pleasant bloke respected by academic colleagues. What took him so long? But I had forgotten that he was practicing medicine at the same time. I assume that he valued medical practice more than an academic title.

@14/15

Thanks both. I don’t think you can compare two different jobs in two different industries (nurse/train driver) but if we’re going to there are always counter-examples to thrown around as well…

I do think nurses are underpaid, mind.

“I don’t think you can compare two different jobs in two different industries (nurse/train driver) ”

Sure you can. “How much do I need to pay to get the skills required?” works pretty well. You know, this supply/demand, markets stuff?

And note, what will be the determinant of what I “need” to pay will be what is the next best job offer available to the people with those skills.

For example (and I’ll use the US instead of the UK with its ludicrous national pay deals which means that nurses in London are poor while those in the North are on a solid middle class income), nursing salaries have soared in the last few decades. Relative to other salaries that is. Nursing, when women had very few choices of jobs, was a very badly paid profession. The average for an RN now is over $70,000 a year. That’s one thing that the economic emancipation of women has done: by giving more choices its raised the salaries of the “traditionally female” jobs.

Good things these markets, ain’t they?

Tim Worstall: So the period when the NMW was introduced is correlated with stagnant incomes for the lower paid. And you call this a sucess?

Incomes have been stagnating for a lot longer. And in fact grew strrongly at a time when unions were stronger and regulation was tighter.

So I hope, since you’re big fan of correlation (without looking into causation) you’ll join us in calling for stronger union laws

@17. Tim Worstall:”Sure you can. “How much do I need to pay to get the skills required?” works pretty well. You know, this supply/demand, markets stuff?”

You know what, Tim, that is a crap model for building a company or service. Organisations — private companies and government-ish bodies — need to employ people who will build the business, people who can adapt, people who listen to customers. Paying for a job role is misguided.

Pick an employee for the job because s/he suits the business or customers.

I think that you have projected a theory beyond how would behave in practice.

“And in fact grew strrongly at a time when unions were stronger and regulation was tighter.”

Indeed.

And the share of the economy going to profits fell sharply, reducing the amount that was being invested and thus leading to slower growth in the future. So no, I’ll not join your call for strong unions.

“Good things these markets, ain’t they?”

“Good things these markets, ain’t they?”

Says the man who lives on the wingnut welfare circuit. So has never has to do an honest days work in his life.

“Says the man who lives on the wingnut welfare circuit. So has never has to do an honest days work in his life.”

What wingnut welfare circuit is this Sally? Do tell, for I’ve never actually heard of it. Certainly never got a cheque from it.

I have two sources of income:

1) Writing. I do all sorts of bits and pieces, from comment pieces for newspapers all the way through to 300 word nonsenses for places like e-How. I get paid just as any other freelancer does.

2) I own and run a business which wholesales (so no, not just playing with money in The City, actually going and getting real stuff, refining it and delivering it) weird and exotic metals. Proper industrial stuff too: the sort of metals that make street lights work for example.

Please do tell how the “wingnut welfare circuit” helps out here.

“What wingnut welfare circuit is this Sally?”

Priceless.

All the right wing media that pay you for your free market clap trap.

You should write some books. I’m sure the Heritage foundation , or some other wing nut think tank would buy up all the copies, and then give them away as prizes like they do with many right wing authors.

Then Fox will have you on to promote it for free, and the giant right wing Wurlitzer will spin and spin and spin.

24. sally:

Have you written a book?

Of course I have not written a book. And if I did nobody would want to read it.

@26. sally: “Of course I have not written a book. And if I did nobody would want to read it.”

Heaven is thus defined.

I’ve written two books Sally. Two books that have even been published. And no Sally, it doesn’t work the way you seem to think it does.

@20 Tim Worstall

Indeed.

And the share of the economy going to profits fell sharply, reducing the amount that was being invested and thus leading to slower growth in the future. So no, I’ll not join your call for strong unions.

Unfortunately, despite a higher level of GDP going into profits, this has not, except for a brief period in the late 1980s, led to a significant increase of investment going into the productive economy. Which remains low by international standards.

http://duncanseconomicblog.wordpress.com/wages-investment-%E2%80%93-an-outline-of-an-economic-programme-for-labour/

Instead much of it has been invested into loans (to compensate for stagnant wages no doubt) and various bubbles, which have given us the illusion of prosperity for the last few decades.

Indeed the main effect of the Reagan/Thacherite economics of the last 30 years and their demolition of unions etc has been for the proceeds of growth to go vastly disproportionately to the top earners while those at the bottom and the middle have stagnated. Vastly increasing innequality and creating a new class of super rich (which some would say was the intention all along).

http://www.taxpayersalliance.org/news/how-soaring-inequality-fuelled-the-crash

http://www.economicpopulist.org/content/no-long-term-recovery-without-real-wage-growth

It does appear that the Thacherite/neo-liberal economic experiment of the past 30 years has reached a dead end does it not?

“And no Sally, it doesn’t work the way you seem to think it does.”

Oh yes it does. Maybe you are not wingnutty enough.

29. Graham – “Indeed the main effect of the Reagan/Thacherite economics of the last 30 years and their demolition of unions etc has been for the proceeds of growth to go vastly disproportionately to the top earners while those at the bottom and the middle have stagnated. Vastly increasing innequality and creating a new class of super rich (which some would say was the intention all along).”

Wages at the bottom and middle of America have not stagnated.

http://blogs.reuters.com/james-pethokoukis/2011/04/27/why-liberals-owe-reagan-a-huge-apology/

As you can see the richest have done best – as you would expect in an era of rapid economic and technological growth. But the poor have done well as well. So what if the richest have got richer given the poor have got richer too? Why do you think that is a problem?

“It does appear that the Thacherite/neo-liberal economic experiment of the past 30 years has reached a dead end does it not?”

No it does not. On the contrary. We have the greatest crisis in the world economy since the Great Depression and the Left is utterly unable to come up with any sort of alternative. A little tinkering. The Left is intellectually dead. It is regretful but it is true. There is no alternative as yet to neo-liberalism.

@31

That’s highly dubious. I think you’ll find that a lot of the apparent increases in consumption etc over the last 30 years have been achieved by people substituting debt for wages to fund lifestyles that a generation ago could have been funded from wages alone. In the US and UK household debt has grown spectacularly over the past few decades whilst levels of savings have collapsed.

http://www.renewal.org.uk/articles/a-bail-out-for-working-families/

As the links I posted here and above discussed. This was never a sustainable path, and has now reached it’s limit. The Thacherite theory that crushing the unions and reducing workers bargaining power would lead to more profits and greater investment has not panned out. It has merely led to a vast increase in innequalty and a boom in asset bubbles and debt.

But aren’t higher wages a good thing…full stop? I mean is the nation full of people going into their employers (if they’re lucky enough to have one) and demanding that they reduce their pay packets in the national interest? Please reduce my living standards to those of the absolute minimum found anywhere in the world so that I may retain the privilege of staying in employment? And so that the nation’s economy may recover from crisis?

32. Graham – “That’s highly dubious.”

Then produce some evidence that it is wrong. There is simply no sane way to deny the massive growth in income since the Thatcher years. That’s even ignoring the massive technological improvements and deflation.

“I think you’ll find that a lot of the apparent increases in consumption etc over the last 30 years have been achieved by people substituting debt for wages to fund lifestyles that a generation ago could have been funded from wages alone.”

And I think you will find that it hasn’t. Posting a link to a leftist political magazine is not evidence. Yes there has been a growth in debt. So what?

“As the links I posted here and above discussed. This was never a sustainable path, and has now reached it’s limit.”

You make this claim as if that was enough. It is not.

“The Thacherite theory that crushing the unions and reducing workers bargaining power would lead to more profits and greater investment has not panned out. It has merely led to a vast increase in innequalty and a boom in asset bubbles and debt.”

Actually it has worked out. Well. It has worked out wherever it has been tried. It is true that Chinese lending has created a bubble. But that is irrelevant. Most people are still vastly better off than they were in the 1970s.

34
Exactly what are you comparing when you say that crushing unions and worker bargaining power has already worked.?

@34

Then produce some evidence that it is wrong. There is simply no sane way to deny the massive growth in income since the Thatcher years. That’s even ignoring the massive technological improvements and deflation.

Posting a link to a leftist political magazine is not evidence. Yes there has been a growth in debt. So what?

I already have, just you’ve ignored it. And as an aside why exactly do you dismiss my (well referenced) links as “leftist political magazines” and declare them not evidence. Yet treat a link to a single right wing blog as five star gold plated proof?

The links which you quote make heroic assumtions about “benefits” which even they admit cannot be easilly quantified. A large proportion of those “benefits” is in fact healthcare. And much of that could be explained by the massive inflation in heathcare costs in the US. And even taking their dubious estimates into consideration they show that income growth has been far from spectacular.

What is clear is that wage levels have declined dramatically as a percentage of GDP. And income levels have not for a long time kept up with consumption. Necessitating a huge increase in household indebtedness.

http://www.investorschronicle.co.uk/Columnists/ChrisDillow/article/20110126/d650af96-292d-11e0-8051-00144f2af8e8/The-wage-squeeze.jsp
http://www.centreforum.org/assets/pubs/slash-and-grow.pdf

This is hardly surprising when the main thrust of economic policy for the last 30 years has been to control wage-led inflation.

“The Thacherite theory that crushing the unions and reducing workers bargaining power would lead to more profits and greater investment has not panned out. It has merely led to a vast increase in innequalty and a boom in asset bubbles and debt.”

Actually it has worked out. Well. It has worked out wherever it has been tried. It is true that Chinese lending has created a bubble. But that is irrelevant. Most people are still vastly better off than they were in the 1970s..

Really? Perhaps you’d like to explain why, despite the proportion of GDP going into profits rising dramatically. The UK still has a lower level of investment than its international peers. Which was after all the main rationale for the undermining of unions and “flexible labour markets” et al.

http://docs.google.com/viewer?a=v&q=cache:NCdQ3RxVzvAJ:wps.pearsoned.co.uk/wps/media/objects/1186/1215202/cases/part_h/H06_sep06.doc+he+low+level+of+investment+in+r%26d+the+uk+economy&hl=en&gl=uk&pid=bl&srcid=ADGEESjtqpzefseUfvVHwom1xxgt9BHlPzHb92qCrbybzCkXYrHeGC6RmjzVF7LIM0p0bHzpKmJxttZ2dXJ7hf4XTu7_l47FkDVHS0MqECsLKnKgXjBY6rjJ3xgZ-X5z3qg_LfCOhSmk&sig=AHIEtbSHgeHL4o8PHUgtau43sgt4HDJMbQ

http://docs.google.com/viewer?a=v&q=cache:ZMkT6XZjyjQJ:www.ippr.org.uk/members/download.asp%3Ff%3D/ecomm/files/going-for-growth_Feb2011.pdf%26a%3Dskip+between+december+1997+and+december+2007,+the+pre-recession+decade,+uk+banks+advanced+%C2%A31.3+trillion&hl=en&gl=uk&pid=bl&srcid=ADGEESj9dN_uVb-6gExdmdBZQytw4QpBdTYee5Y-ZmJbgfDLw0vBCzwWKScSLakxUXgw-UAJ__TscVXvjk1fBz7RPsXO3z-LXLjYYHHuOh-WGznlP18veLS8MBLYksJOqXAz–j8WhKM&sig=AHIEtbTHZZnKYfEWFFQ7RjYLSAjuM_epig

This Mc Kinsey global investors is an excellent report on investment and the trends are quite clear from the charts. Companies have the money but they are just not spending it on investment. In fact, there has been a reversal of historical trends where households saved and companies borrowed the capital through banks and capital markets to fund investment. Now companies are net suppliers of capital to the rest of the economy.

http://www.mckinsey.com/mgi/publications/farewell_cheap_capital/pdfs/MGI_Farewell_to_cheap_capital_full_report.pdf

The argument is not that we have not had technological improvements. It is the improvements and technology have done little in terms of measured things like income. We are doing little in terms of total factor productivity and that is ultimately where higher incomes for workers come from. For example, an innovation like Facebook is tremendously popular as can be seen from the amount of users. The innovators gain a high monetary value from their innovation. The users gain a large consumer surplus from freely using the innovation. Their lives are better through the innovation of Facebook than they were previously. However, it adds little if anything to users or societies in terms of measured income. The advanced world is full of innovations that have undoubtedly made lives better, but just not in terms of income because they are not adding to productivity.

“The advanced world is full of innovations that have undoubtedly made lives better, but just not in terms of income because they are not adding to productivity.”

It goes much further than that.

For example, Skype. For zero money I can now phone around the world. 30 years ago that would have cost a fortune. So I am enjoying a consumer surplus, yes indeed. But recorded GDP (and thus incomes of other people) have just gone down, as the costs of those phone calls vanish from the GDP statistics.

Multiply this a few times by various industries (newspapers, e-books, music, etc) and we can see that we’ve got *declining GDP* even while actual consumption continues to rise. Sure, that declining GDP is only about part of the economy, but it does show up GDP for what it always has been, a not perfect measure.

“What is clear is that wage levels have declined dramatically as a percentage of GDP. And income levels have not for a long time kept up with consumption. Necessitating a huge increase in household indebtedness.”

Which helps to explain this as well. Consumption, measured properly, isn’t falling at all. Further, the disparity between income and consumption as conventionally measured (ie, in monetary terms) isn’t all covered by borrowing at all. There’s been an increase in redistribution of incomes too, don’t forget. Lower income households do get more in tax credits etc than they used to, so measuring market income alone (which is what the US poverty figures are basde on as an example) doesn’t show consumption levels.

38
GDP not a perfect measure, really.

‘Lower income households do get more in tax credits’. Yes they do, this is a good example of the consequences of crushing unions and collective bargaining, – instead of employers being persuaded to give employees a decent wage, the state now takes it from the pay packets of other workers. Well, I suppose you can call it ‘redistribution’.