Tuesday, June 8, 2010
The death of wage power
BBC NEWS
Footballers, or maybe bankers, epitomise the phenomenon of ever-spiralling wages that are dislocated from economic worth. Well, life is a game of two halves and economic reality now has the ball. Footballers wages will gradually come down and they will no longer have the whip hand in negotiations. I see this article as symbolic of the fate of the less glamorously occupied British worker, who has completely lost his wage bargaining power. If the British worker is not cost competitive with his foreign counterpart, then he will ultimately lose his job. It is amazing that it wasn’t always thus but the last decade or so of endless liquidity and credit has allowed us to fantasise that we had some sort of economic free pass.
Posted by flashman @ 10:31 AM (1406 views)
12 thoughts on “The death of wage power”
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flashman says:
It is not hard to work out the effect of reduced wages on house prices. House prices will come down if wages come down but that will not, on the face of it make house prices more affordable (the ratio remains the same). However, there is a large component of current house prices that reflects the expectation of ever growing wages. Many surveys have shown that the vast majority of house buyers expect to enjoy significantly higher incomes in the future. If you take this expectation/fantasy away, you also remove the fantasy portion of house prices. I’ll take an arbitrary guess and say that 20% of the current price of a UK house, is the ‘wage fantasy’ component
letthemfall says:
Expect Engerland will give away a few free passes from Friday innit. Quick, get rid of it.
recap: Rooney rubbish
(not really)
str 2007 says:
Re: the wage thing – anecdotal
Had a chat with a Police Officer the other day who’s wife is also a Police Officer. So 2 quite good wages and bullet proof pensions etc.
They’d recently been looking to upsize from a 3 bed semi to a small 4 bed det. They didn’t in the end and stayed put.
It was also mentioned to me that a 2-3% interest rate rise would take them very close to their limit where they are now.
I don’t know mortgage sizes etc. but tis couple are well into their 30’s (so aren’t recent FTB’s).
The above to me says just how far out of sync house prices are really. ( 2 good wages, index linked and no pension worries and a 2-3 % rate rise would be pushing the limit in a small 3 bed semi ).
So agree flashman that there’s a certain future wage expectation factored in to prices that may well come off before long when alot of people don’t get wage rises and feel thankful to have avoided wage cuts.
techieman says:
Hang on hang on…. I think the measures GDP and National income need to be defined and an explanation provided as to how you can have a contraction in aggregate wages which are a function of company profits (private sector) and yet have growth.
The premium that you talk about is a valid issue and since that premium could turn to a discount, then this supports the potential for large price falls at least in some susceptible areas.
flashman says:
techie: A large proportion of our GDP comes from UK companies who generate large portions of income via overseas business and/or have high capital ratios (low numbers of employees per unit of revenue). It is therefore quite easy to see a scenario that combines static domestic wages and economic growth. They sometimes call this scenario a ‘jobless recovery’. With this type of recovery there is usually a lag of about 18 months before domestic employment picks up.
The main point I was making was that there is very little wage bargaining power at the moment (which could easily affect house prices). No GDP discussions intended here!
techieman says:
Flash – on the other thread my argument agrees with the wage argument you forward here (no wage/price inflationary spiral ) , which is why i was questioning the validity of the point you made there. So in effect you are saying that the large capital intensive companies will pull through the rest of UK plc, who may work in labour intensive industries.
Thats as maybe but it relies on alot of factors, one of which is the assumption that overseas earnings can continue without being too squeezed. I am sure you can come up with such industries and this is where access to such information is valuable and gives – i would say -the inside upper hand.
If there is an 18 month lag, at best (for HPCers) you will be arguing for bumping along the bottom then, so by implication your timeline for a crash should be imminent… or have i misunderstood?
flashman says:
techie: Overseas income could well continue at a decent pace because aggregate world growth is forecast to continue. Almost all our minerals, energy and finance/banking industries (to name a few) gain income from abroad and IF world growth continues, they will do well. I am not making predictions at this stage just, outlining possible scenarios
When you say a crash, are you talking about house prices, the economy or the markets? The only crash I would be happy to forecast is a house price crash if unemployment tops 3 million. The rest is quite opaque to me at the moment and I am just kicking around some theories and scenarios
techieman says:
oh HP crash only…. I have my own ideas on the rest which are on the basis of if this does this then that might happen… you know.
bellwether says:
We are service and credit based economy, only a relatively small proportion of GDP comes from corporates based overseas. It is this service/credit basis element that has allowed us to remain suspended in mid air (that and the developing econs have had little choice but to grow out of cheap imports and our consumption our of cheap money which they to an extent lent to us) and allowed us to retain the fantasy wages along with the fantasyGDP figures (fantasy in this context meaning not remotely sustainable) Agreed wages must shrink.
flashman says:
bellwether: In my opinion, we are much more than just a “credit and service based economyâ€. I picked out some smaller sectors to illustrate the point (these are just export figures)
Food and drink exports: circa £12 billion
Arms exports: circa £10 billion
Our minerals, quarrying, financial, banking and energy sectors represent a huge chunk of the FTSE and much of the business done by these sectors is export business. Of these large groups only the financial sector is service based but the contribution it makes by exporting its services is just as valid as a physical product export. Obviously we also export all sorts of other products and services including cars, pharmaceuticals, and technology. Believe it or not even our education system exports its services quite successfully!
I think there is a major disconnect between the common perception of a Britain ‘doing nothing’ and the reality. I think thats why the last three quarters of growth surprised so many people
techieman says:
Flash : i repeat “so by implication your timeline for a [house price] crash should be imminent… or have i misunderstood?”
flashman says:
Yes I think you might have. I would only predict a house price crash with any degree of certainty if unemployment topped 3 million. I have no idea if or when unemployment will top 3 million, so I can’t produce a timeline.
I was happy to predict a few quarters of growth a year ago because I could see some very solid data and clear reasons to do so. I wouldn’t/couldn’t predict the same thing going forward because there is no solid data and too much policy uncertainty. I am happy that I was right about the three quarters of growth but there was a rare window of clarity a year ago that just isn’t there any more. All we can do is kick around some scenarios (like the one posted here) until something become clearer. It is my firm opinion that unemployment is the master influencer of house prices but unfortunately unemployment numbers are a pig to predict. The government has yet to reveal its hand on public sector jobs. We’ll have a lot more predicting power when they do