If exploitation increases...

The Bank of England expects capitalists to increase their exploitation of workers in the next few months. It doesn't quite put things this way, but that's what it means when it says (pdf):

In the central projection, the recovery in productivity growth outstrips that in nominal wages for a period, meaning that growth in companies’ costs falls back. That alleviation of cost pressures allows company margins slowly to be rebuilt.

You might wonder what it means by "rebuilt". Surely, the fact that real wages have fallen in the last 12 months means capitalists have already profited at workers' expense. What about all those stories of profiteering utilities' companies and suchlike?

Stop wondering. In fact, those workers who have kept their jobs have done quite well at capitalists' expense.

My chart shows the point. It shows the own product real wage. This is wages (defined as total compensation per hour) divided by the product of GDP per hour and the GDP deflator.

The idea here is that workers can gain at capitalists' expense if their wages rise relative  to either prices or productivity; if our pay rises without us being more productive, we've won and capitalists have lost.

And this is just what's happened. Since 2008, productivity has fallen but real wages have fallen less. The OPRW has thus risen. 

Real wages have fallen recently not because capitalists have become even more evil and exploitative, but because productivity has fallen. The economic pie has shrunk. Labour's share of it has held up well.

The Bank of England is predicting a reversal of this. This is not unusual. The OPRW fell during the recoveries of the early 80s and 90s, precisely because productivity rose faster than real wages.

Herein, though, lies a problem. Real wages (average earnings divided by CPI) are lower now than they were in 2005. If the Bank's forecasts are roughly right, they won't recover much soon. This could mean an entire decade or more of falling real incomes for many households. Will this be politically palatable if profits are seen to be rising? Might it not increase demands for tax cuts to restore living standards?

The political implications of the Bank's forecasts could be significant.

Comments

[Luis Enrique]

interesting ... a small point, but I think the kinds of people who would clamour for politicians to "do something" about rising profits and stagnant real wages are more inclined to call for tax and spending increases, rather than tax cuts, to restore living standards.

[gastro george]

And why wouldn't they, because while they might obviously be gainers if wages rise and profits fall, they are still likely to be at least marginal gainers overall if spending increases and taxes also rise (= wages fall).

[Luis Enrique]

gg, sorry I did not mean to imply they'd be wrong to do so, I just meant lefties care more about these things and don't tend to call for tax cuts. Plus by tax increases I had in mind taxes on profits and wealth that wouldn't reduce real take-home wages much.

[gastro george]

Oops, I missed the tax cut bit at the end of Chris' post - that'll teach me to skim read. Yup, that's more of a Lib Dem policy, I guess, and not one you'd expect a leftie to propose.

I find it hard to stomach the BoE waffling on about the upside of increasing margins when most major companies are sitting on vast piles of cash due to the lack of investment opportunities. The economy desperately needs an increase in real wages and real disposable income. The compression that we have today is a direct cause of our "sluggish" economy, and will continue to be.

[alternative investments]

Companies are sitting on large piles of cash because they are indeed not seeing the investment opportunities. And the reason those opportunities are not there is the debt, the massive debt overhang. The UK has a debt to GDP of approximately 500%, and many consumers are more concerned with deleveraging then spending. Richard Koo of Nomura has a great word fot it - he calls this condition a balance sheet recession.

[gastro george]

It's interesting that the dismal Martin Kettle is continuing with the usual nothing-to-be-seen-here or there-is-no-alternative line - why does the Graun pay for his nothing-speak?

The main line is that of end-of-era, the inevitable decline of the west, etc. So the population must accept the inevitable suppression of wages into the distant future - as they have since the 80s.

But this is entirely in line with the needs of the financial/managerial classes - who continue to have no wage compression - indeed we've recently seen another 27% increase in FTSE director salaries.

So let's not complain, let's not think of another way, let's just accept the vampires around out throats.