Friday, September 6, 2013

Median earnings falling since mid 2000s

Low Pay Britain

Report interesting in the light of discussion of the nature of the recovery. Median wages in the UK have been falling since 2007. see p10-11. but based on OBR projections (for what those are worth) median earnings are not projected to recover by 2016. Figures are in real terms. When RPI is used to adjust for inflation rather than GDP, median earnings were falling since 2006-7 ie before the crash. Since these are for wage earners, they don't reflect changing incomes because of movements into / out of unemployment. But long term unemployment has not been falling. Does a recovery coupled with increased inequality mean most people are not benefiting? How much can the housing market be inflated on the back of this?

Posted by nickb @ 12:34 PM (2740 views)
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31 thoughts on “Median earnings falling since mid 2000s

  • An increase in govt spending and credit will fix all of that.

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  • The Resolution Foundation is a campaign/focus group for lower income people. That is an admirable thing to campaign for but of course it does mean that they are likely to choose a data analysis technique that serves their purpose.

    The median wage is a statistic but not a particularly useful one in this instance. The median wage is much less than the average wage. This is because of a high level of skew in the distribution of workers by wage level. Median or mean wages should be chosen depending on symmetry of data and/or the purpose of the analysis. For example are we trying to analyse the incomes of house buyers and consumers or are we analysing the incomes of unemployed/underemployed people living at or near the poverty line? One tool doesn’t fit all. Take a look at the second chart down (blue line) in the link below. It paints a completely different picture of steeply rising gross disposable income. It is actually just as useless as the analysis in this article, which hopefully illustrates my point

    http://uneconomical.wordpress.com/2013/05/23/deleveraging-is-easy-deleveraging-is-good

    As I have explained before, income and unemployment (not high by historical standards) levels are not a useful tool for quantifying the quality of an economic recovery, in its early stages. This is because wages and employment tend to lag a recovery.

    Apologies for my cynicism but I often suspect that some recovery naysayers are politically motivated. Labour supporters are horrified by the recovery because they suspect it will lead to a second term for the Tories. I’ll say it again: We cannot judge the quality of a recovery, in its early stages, based on income and unemployment. This is because they lag behind a recovery. It’ll be 2 or 3 years before citing lower incomes becomes a valid tool for judging the veracity of a recovery

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  • mountain goat says:

    @flashman I realise your main point is about lag time in income and employment in a recovery, on which I have no comment due to ignorance. However, wouldn’t you agree that median (middle value) is the correct metric for reporting “average person’s” income since income has such a long-tailed distribution (i.e. small numbers of people earning very large incomes, flatter curve in image below)? The high income people contribute disproportionately when using the mean, so that the mean is skewed higher in these distributions away from what it is meant to report i.e. what the “average person’s income” is.

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  • Yes, I find it hard to properly debate a recovery when people insist on throwing unemployment and income into the mix.
    I also get frustrated by people using evidence from their own lives rather than looking at statistics.

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  • Median wages is a better measure of income distribution because the distribution is asymmetric. Actually the distribution is dichotomous (last time I looked): there is a peak at low wages. But the median is still a better representation than the mean.

    I would say Labour supporters would be quite pleased about a recovery. Historically they have tended to do better when the economy is stronger, and vice versa.

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  • unemployment (not high by historical standards)

    The prevalence of part-time and internships offer an explanation for such sterling stats in a full blown depression.

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  • Median income in part measures the amount of underemployment as well as wage levels,so it’s a reasonable measure, in conjuction with others (e.g. paying down debts), of the capacity of individuals to spend. (Btw that rising gross disposable household income in the chart flashy mentions is at current (not inflation-adjusted) prices – “inflation-adjusted household income per head, including services in kind provided by the govt has been flat since 2004” – ONS quote 2013. Given widening disparities of income this does not bode well for spending by that part of the population that spends all of its income.)

    To make a judgement on flashy’s ‘naysayers’ and whether a recovery or a deadcat bounce is underway I would take into account (1) GDP is significantly lower than it was 5 years ago – I’d want GDP to be a lot higher than it was then before talking of recovery (2) in most recoveries economies come bouncing, not limping or zigzagging, out of recession: the economy shrank as recently as Q4 2012, 5 years after the downturn (3) in previous depressions, especially the 1873-96 (23 years!) one, there were many false dawns followed by fresh busts (4) recent times have seen bubbles, exuberance and busts since finance has become an important driver of the economy (5) if you subtract net new debt from the usual measure of GDP you would have to argue that much of the growth over the past decade or more has been borrowed rather than earned.

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  • mountain goat says:

    The term “debt fueled recovery” gets used a lot by regulars to this site to argue that HP and a possible economic recovery are unsustainable. However, since even the money in your wallet is just an IOU it is not the increase or decrease in debt that matters but whether the debts can be sustained and supported by the system. The sub-prime financial crisis showed us that everything possible can be done to keep the debts sustainable; even stealing from savers to keep the banks afloat. Since the currency is an IOU, savers could just be regarded hoarders of debt anyway. Inflation is regarded as a target to be achieved and that is how the debts will be paid.

    IMO there is too much innovation and progress going on in areas that sustain our lives for the global economic system to stagnate, deflate, starve, war, anarchy or whatever. The innovation and progress is what matters not whether there is a debt currency or gold standard. So long as this wealth creation continues the debt dance can go on and by the looks of it, this will go on long after we are no longer here to care.

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  • Median wages is the best measure if you want to show poverty and mean is the best measure if you want to show people doing better. Take your pick.

    Mountaingoat, yes, as per my first post the distribution is skewed/asymmetric but that would only dictate using the median if all you wanted was an academic ‘flat’ statistic on your page. If you wanted to actually do something with the number then you would chose something else. What I’m getting at is do we want to analyse a group of people that are a symptom of past conditions or do we want to analyse a group of people who are an symptom of present conditions?

    Icarus and assorted, I can only report a recovery based on all established definitions. If you want to create your own personal definitions then feel free to do so. However to avoid confusion please put an asterisk by your definitions and conclusions stating that you have made up something new. I’ve actually done some serious research and I’d like to share the results with you: On Tuesday the 12th of March I noticed an unusually large boner. Then on April 7th the beer was off in my local. Using this data and my new set of definitions, I’ve conclusively proven that Northern Rock is the most profitable bank in Swansea.

    letthemfall, Labour supporters do not like it one bit that the economy crashed under them and recovered under the Tories. Are you seriously expecting us to believe that Labour supporters are actually pleased by this? Son of Mandelson levels of spin

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  • mountaingoat @8

    Beautifully put

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  • Median wages is the best if you want to show the wage at which half earn less, half earn more. Any number is just a number; it’s the context in which it’s placed that matters. (Including growth rates.)

    What Labour supporters actually think you would have to ask of them. Just pointing out the historical occurrence.

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  • As luck would have it, I’ve just passed a chap wearing a flat cap on his way down from Jarrow – quite a rare sight in my Surrey village. When I asked him what he thought, he shifted the ferret in his trousers and agreed with me. Labour don’t like it one bit. Unfortunately I couldn’t ask him more because he immediately staged a sit down

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  • dill, it wasn’t you in the flat cap, was it? The ferret didn’t look happy

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  • mountain goat says:

    Thanks flashman, as you wrote a few days ago being wrong is understandable but stubbornly holding onto views when you are proved wrong, isn’t. Most of us were right that the trajectory of house prices was unsustainable and the sub-prime mess showed there was illegality, incompetence and greed in control of the industry. But the economic system has showed its hand; defend debt at all costs. That is where we were wrong; that a bit of a debt crisis would change how things were done. It seems pointless fighting that system. Taking on some modest secured debt on a house (which everyone needs anyway and IR are ridiculously low at the moment) and watch inflation erode that debt is the easiest way for the little man to fight back. Speculating on asset prices usually gets you eaten in the shark pool. I am not a property bull all of a sudden. But one has to live somewhere. Inflation is a big problem for any saver, more so the more savings you have. Which is why the wealthy from all over seem to be buying London properties (probably not with 100% cash for the reasons explained above). I do sympathise with FTB living in London for this reason, as well as that you have no hills around you like we do up north 😉

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  • Perhaps he thought you look like a ferret, flashers.

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  • That’s a bit awkward letthemfall. Doesn’t really work.

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  • flashman @9 – if you want to say that the official definition of recession and recovery is so and so, and this definition has been met, therefore we have a recovery, why not just say that? We all agree! Nothing more to discuss. If you want to ignore others’ concerns by using the official definition, feel free.

    mountaingoat – “there is too much innovation and progress going on in areas that sustain our lives for the global economic system to stagnate, deflate….”. That was exactly the feeling prior to the 1873-96 depression. “Look at all the progress – transatlantic cable, telegraph and telephone, Suez and Panama canals, electricity, railway booms, large numbers of new companies, building booms in European cities, ocean-going steamships, the rise of German and American industry, cheap American grain etc”. Also deregulated finance, the burgeoning of big banks, easy credit, stockmarket booms, then bourses suddenly in meltdown and the 23 years of depression.

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  • IMO there is too much innovation and progress going on in areas that sustain our lives for the global economic system to stagnate, deflate, starve, war, anarchy or whatever.

    Yes, but all that costs, it ain’t cheap or free. Moreover, the people who do innovate and progress will want to produce their products as cheaply as possible – so as to maximize profits for themselves…..and there’s the rub.

    Frankly the UK and US middle class is effectively being ruined …their jobs are going overseas – or their wages dropping, their savings are being destroyed by confiscation (bail-in) or inflation and they are facing debt slavery….BUT it is those jobs that are needed to keep big government going. Presently the difference is being made up via borrowing or QE……but they can’t do that forever, the day of reckoning is not far off.

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  • A bit like some of your arguments flashers.

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  • Icarus, established definitions are essential. Without them we’d need babelfish for every conversation. I have no wish to ignore your concerns. Talk to me about them as a topic in their own right and I’ll probably surprise you with a sympathetic response. There are several concerns I have expressed here about the economy and our society. I might be wrong but I don’t recall you ever expressing anything other than doom and despondency. Maybe you see things differently but nothing has panned out as you though over the last few years. Doesn’t that knock your apparent sense of certainty just a little?

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  • flashman – I’ve already argued that It’s a bit sterile to keep on with official definitions. We can discuss the economy beyond that. Even Osborne yesterday called the recovery ‘fragile’ rather than ‘official’

    “Doesn’t that knock your apparent sense of certainty just a little?” What sense of certainty would that be? All I’ve done in this thread is to give specific reasons for doubting that there’s a sustainable recovery afoot. And what’s panned out over the last few years? GDP is significantly lower than it was 5 years ago.

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  • @ ltf

    I’m a humanist. I don’t worship false entities.

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  • Flashman – Surrey – enough said.

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  • Icarus, what’s panned out is that the economy started growing when you thought it wouldn’t. What’s panned out is a complete absence of the depression you’ve anticipated for years. We are not remotely where you thought we’d be, so why not be a little gracious about it?

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  • Denying growth? Moi? As I wrote above, there are zigzags, growth spurts, false dawns and slowdowns but no clear signs of uninterupted growth.

    Gracious? You made an argument the other day based on the idea that there was something economically healthy about house prices holding up despite lower mortgage borrowing. When I pointed out that the reason for less mortgage borrowing was the big drop in number of house sales you responded that you weren’t really interested in house sales or prices after all – you just wanted to emphasise the health of the service sector. How gracious was that?

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  • Icarus, what’s panned out is that the economy started growing when you thought it wouldn’t. What’s panned out is a complete absence of the depression you’ve anticipated for years. We are not remotely where you thought we’d be, so why not be a little gracious about it?

    False flags – to stop the turkeys from getting too restless before xmas.

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  • Icarus, I was actually just trying to avoid you because of a day or two earlier and because I wanted to steer the debate back to the article topic which was service sector growth. You completely misunderstood the point I was making re house prices and I didn’t have the patience at the time for an off topic debate. You were a little bit cockeyed about mortgage borrowing being reduced by the number of house sales. It’s more the other way around. The crunch and Basel 3 reduced mortgage lending which in turn reduced the number of houses that could be sold. People wanted mortgages but they suddenly couldn’t get them. Prety standard stuff. Seeing as everyone here (you included) talks about credit driving prices, I made an observation about house prices managing to rise (above peak in London and parts of the SE) despite mortgage lending still being down from peak. How can that not be significant? How can that not in some way represent the presence of money and confidence?

    Never mind spurts and zigzags, I distinctly remember you consistently thinking that there would be no growth for many years to come. You thought that we’d be in an entrenched depression now. Well we’re not.

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  • flashman – if house sales and prices were off topic why did you bring it up? You can’t infer much about the health of any market by pointing out that prices have held up when there’s a much lower level of sales. And causation was two-way; not many wanted to buy or lend while prices were falling. There’s a Nationwide graph of real house prices at the hpc home page that’s worth looking at if you think the market has rebounded.

    As for your second para there’s a difference between sustained growth and zigzags (a word used by the BoE in view of the number of quarters of no/negative growth in recent years, even after the worst of the GDP falls). “Entrenched depression” – you’re putting words into my mouth. I’ll just stick by what I wrote above @7 and @20 about my doubts about a medium-term recovery being underway – and wait for you to respond to them.

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  • Icarus, It’s incredibly easy to get side tracked in a debate. I try not to but don’t always succeed. I hope you don’t mind me saying but you are still talking about events in the past to rebut a recovery that’s happening now. That’s why I don’t bother to discuss these types of point. An example of this is when you said that there was a negative quarter in 2012 to cast doubt on the current acceleration of growth. It’s a bit like saying that Charlton Athletic once won the FA cup so they clearly have the potential to be better than Barcelona. It’s kind of true but mostly bogus. We will have to agree to disagree on your past comments. Out of respect to you and because I can’t be bothered, I won’t dig out old posts of yours. You are perhaps the most thoughtful and pleasant of the ‘perma bears’ but I have to admit to being slightly dismissive of viewpoints that appear to be fixed come rain or shine. Personally I am already looking beyond the almost inevitable boom that’s coming to the possible dark clouds. For example I see an energy crisis brewing in the medium term and also a very damaging commodity price spike. I had a bit of luck (but it also helps that I’ve done this stuff for a living) with the predictions I’ve made on this site. I’m hoping to also get the end of the boom right but have a few years before I have to make decisions. Peace brother

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  • flashy – Godwin’s Law states that any blog that goes on for a long time will eventually come up with a reference to the Nazis. But he didn’t say anything about Charlton Athletic…….Adios for now.

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  • Cheers

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