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Wage Inflation Instead Of Hpc

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House price crashing isn't happening as fast or as far as we need it to.

So how about wage inflation instead to counter it? It would also normalise things but working from the other side.

Serious question and I'd appreciate all views on the subject.

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House price crashing isn't happening as fast or as far as we need it to.

So how about wage inflation instead to counter it? It would also normalise things but working from the other side.

Serious question and I'd appreciate all views on the subject.

Wage inflation catching up with house prices was the mantra trotted out by Shapps/Green in their tenure as Housing Minister, Prisk likely subscribes to a similar view (he is very low profile though).

The only problems with that idea is that 1) wages are in a real-term decline, back to 2003 levels or so. 2) the rate of wage inflation required to bring back historic average could take a couple of decades to play out, even if wage inflation does pick up.

Like most things that come of politician's mouths, this seems to be politically expedient wishful thinking.

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Wage inflation catching up with house prices was the mantra trotted out by Shapps/Green in their tenure as Housing Minister, Prisk likely subscribes to a similar view (he is very low profile though).

The only problems with that idea is that 1) wages are in a real-term decline, back to 2003 levels or so. 2) the rate of wage inflation required to bring back historic average could take a couple of decades to play out, even if wage inflation does pick up.

Like most things that come of politician's mouths, this seems to be politically expedient wishful thinking.

Nominal wages are all that matter?

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Nominal wages are all that matter?

To a degree, but there are other things to be bought with wages that are not housing. If food, fuel etc are outstripping wage growth, housing still becomes harder to afford.

It would be a pyrrhic victory if housing reverted to 3.5* average earnings, but inflation in other essentials more than cancelled it out.

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It's impossible until globalisation has played out fully. The assumption that wages will always ratchet upwards which underpins our monetary policy cannot cope with the downward pressures inherent in the global economy at the moment.

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It would be a pyrrhic victory if housing reverted to 3.5* average earnings, but inflation in other essentials more than cancelled it out.

In this scenario, the people who locked in high housing costs are big losers while those who remained flexible lose much less.

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House price crashing isn't happening as fast or as far as we need it to.

So how about wage inflation instead to counter it? It would also normalise things but working from the other side.

Serious question and I'd appreciate all views on the subject.

Why would anyone pay someone more when they can just offshore the jobs to a country where housing is cheaper?

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It's impossible until globalisation has played out fully. The assumption that wages will always ratchet upwards which underpins our monetary policy cannot cope with the downward pressures inherent in the global economy at the moment.

Like what? Wage inflation in China/Brics, Japan (soon) and Germany?

'Course it'll be nominal wage inflation. 100% guaranteed.

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It's impossible until globalisation has played out fully. The assumption that wages will always ratchet upwards which underpins our monetary policy cannot cope with the downward pressures inherent in the global economy at the moment.

+1

We wont have wage inflation for a long time.

Some have had wage inflation tho...the spivs in the city.

At some point our problem will become their problem when no one can afford their investments...expect people to be forced into pension schemes at that point.

Maggie Thatcher died today...her legacy needs to go with her.

Edited by TheCountOfNowhere

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If Sterling goes down another 10%, couldn't wages go up without such an impact on the UK's competitiveness?

Yes, this seems to be the hole in the 'No wage inflation' argument.

Devalue sterling by 10%, increase wages by 5% => wages have inflated nominally, but fallen compared to the rest of the world.

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Why would anyone pay someone more when they can just offshore the jobs to a country where housing is cheaper?

^This. Or we can simply import more cheap labour. Wage inflation is sooo 70's.

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How will wage inflation be paid for.....more inflation and job losses?

When there are more people looking for work, make work pay and all that, who is going to up the pay scales when they don't have to.....the only way now to get a pay rise is by claiming on the state for tax credits, subsidised mortgage/rent relief and CT.......short-term may be by having more kids but that can end up working out more costly long-term. ;)

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Yes, this seems to be the hole in the 'No wage inflation' argument.

Devalue sterling by 10%, increase wages by 5% => wages have inflated nominally, but fallen compared to the rest of the world.

And yet the question still remains - why would an employer voluntarily up workers' wages?

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If Sterling goes down another 10%, couldn't wages go up without such an impact on the UK's competitiveness?

This is what I think may happen. I am putting my money into international share in the hope my savings will hold value if sterling slides. However I would prefer it if sterling doesn't slide and my wages keep its buying power.

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And yet the question still remains - why would an employer voluntarily up workers' wages?

Because devaluation caused inflation in the cost of fuel, energy, etc forces workers with bargaining power* to demand higher wages.

Devaluation increases many company's nominal profits by say 10% - they can then afford a 5% wage rise to compete with other companies for the 'better' people.

Sterling devaluation could also stem the flow of Polish and Romanian workers to the UK, when it's clear that Euros will buy them a nicer place back home than sterling.

Most people get no pay rises, some get decent nominal ones (but still cuts in e.g. dollar terms) => average wage inflation.

* doctors, bankers, lawyers, unionised workers, etc.

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Because devaluation caused inflation in the cost of fuel, energy, etc forces workers with bargaining power* to demand higher wages.

Devaluation increases many company's nominal profits by say 10% - they can then afford a 5% wage rise to compete with other companies for the 'better' people.

Sterling devaluation could also stem the flow of Polish and Romanian workers to the UK, when it's clear that Euros will buy them a nicer place back home than sterling.

Most people get no pay rises, some get decent nominal ones (but still cuts in e.g. dollar terms) => average wage inflation.

* doctors, bankers, lawyers, unionised workers, etc.

How much has sterling been devalued so far? How much wage inflation have we had since?

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And yet the question still remains - why would an employer voluntarily up workers' wages?

Quite. In a time of high unemployment there is no need for an employer to raise wages. The devaluation of the pound also increases a companies costs for energy, components, everything else they have to import, so even if they wanted to pay more where would they find the money?

We've stagflation for the foreseeable future, I see no driver to rise wages.

Also this is not the preferred solution versus a nominal fall in house prices. It lets the over indebted off the hook, and reduces the real value of savings. This encourages damaging behaviour that will impact on us all in the longer term.

You don't want it and you ain't gonna get it. The only solution is tighter lending and nominal price falls.

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Because devaluation caused inflation in the cost of fuel, energy, etc forces workers with bargaining power* to demand higher wages.

Devaluation increases many company's nominal profits by say 10% - they can then afford a 5% wage rise to compete with other companies for the 'better' people.

They can 'demand' whatever they like, they won't get it.

Inflation increases a companies costs, it does not increase nominal profit at all.

We've had devaluation for quite a time now and wages are stagnant, if that.

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uk-nominal-real-wages-07-121-500x334.png

I can't seem any other plan than: QE/deficit fund to maintain nominal asset prices whilst simultaneously inflating the currency gradually over 5-10 years. Wage inflation will appear as monetary austerity bites - the strike talks have already begun. Eventually nominal wages will support nominal asset prices and then the BOE asset purchases can be cancelled quietly.

Surely that is the plan? Not working yet :)

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If Sterling goes down another 10%, couldn't wages go up without such an impact on the UK's competitiveness?

er no...we are already uncompetitive, a 10% drop wouldnt cover the requirement....wages going up again would defeat the object.

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  • 243 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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