Frances Coppola says that in developed economies:
Wages have not kept pace with productivity for the whole of the 21st century. Workers' wages simply don't reflect their marginal productivity any more.
However, this is perhaps not so true in the UK as it is in the US. My first chart compares the real wages of full-time men in skilled trades (which I'm using as a proxy for median wages)* to labour productivity. This shows that since data began in 2001 real wages have indeed lagged behind productivity.
However, most of the gap is because real wages fell between 2008 and 2013. Since then, wages have actually risen faster than productivity.
I suspect the story here is that sterling’s fall in 2008 cut real UK incomes, and wages suffered from this.
My second chart is consistent with this. It shows that the shares of wages and profits in GDP haven’t budged much over the last 20 years. Although the share of wages in GDP fell after 2009, this only reversed a rise in the mid-00s. The wage share is now much the same as it was in the late 90s.
This is a marked contrast to the US, where the wage share has fallen this century.
The difference, I suspect, lies in the fact that monopoly power has risen in the US but not in the UK. The US has seen a rise in “superstar firms” (pdf) in recent years whereas the UK has not: there’s no UK equivalent of Apple or Microsoft. Yes, I know, some people quibble with this. But the evidence for it doesn’t lie only in academic studies. It’s also in the stock market. In recent years, the US market has out-performed the UK. One reason for this might well be that investors have been attracted to US companies which offer what Warren Buffett calls economic moats – things that allow firms to fend off competition.
In saying this, I’m not denying that UK workers are exploited; they are (pdf). Nor am I disputing Frances’ dismissal of marginal productivity theory. My point is simply that, right now, there is a difference between UK and US capitalism. Whereas US capitalism is a story of increasing monopoly, the UK story is more one of stagnation.
* Average wages might be distorted by changes in very high wages. There is also annual data on median wages from the ASHE, but these contain a few breaks in the series, although they show a similar picture to my chart.