Friday, January 23, 2015

Chris Dillow — Real wages & inflation

It's true in the sense that lower oil prices raise the real incomes of oil consumers. It's also true that a surprise drop in inflation of the sort we've seen can temporarily raise real wages. 
However, in the longer-run, real wages aren't affected by inflation. If they were, we could achieve higher wages by (credibly) reducing the inflation target - but nobody believes this. 
Instead, real wages depend upon real things like productivity growth and workers' bargaining power, and these aren't much affected by inflation: at moderate levels of inflation, there's no link between inflation and GDP growth, for example.…
Stumbling and Mumbling
Real wages & inflation
Chris Dillow | Investors Chronicle

1 comment:

Neil Wilson said...

"For one thing, productivity is still awful. "

It will be when you have a massive supply of cheap unskilled labour from across a derelict continent.

In a single labour market, it is the unemployment across the continent that matters. Not just that registered in the UK.

No need to invest in training or new machinery when you can import hours worked very easily.

Dead easy to make things go up if all you do is increase the number of people in the country.

We don't have the housing or the public infrastructure. Certainly not enough ESOL teachers. But hey GDP is rising isn't it and that's all that matters to the economist.

Chris and the others have their head in the sand. They spend all their time scratching their heads wondering what the problem is, when it would be better to remove the blinkers and have a good look around.

Bad productivity is caused by declining capital in the Oil industry and an economy living off the corpse of the last decade by propping it up with cheap imported labour.

Great for the latte set - who as usual are the main beneficiaries. Not so great for those at living in increasingly desperate circumstances at the bottom end of town - including the poor immigrants themselves.