The unprecedented size of the fall in real wages in the UK since the Great Recession has been well documented. Part of this fall – perhaps more than you might think – is a result of a failed macroeconomic policy. I want to argue that this points to a fundamental flaw in the macroeconomic consensus that has governed policy in the UK and elsewhere for the last two decades. I will suggest how this flaw can be corrected so that macroeconomic policy can be better used to support growth in wages and living standards.
Macroeconomic policy generally focuses on GDP rather than real wages, but the two are directly linked if we look at GDP per head rather than just GDP. Growth over the last four years has been unusually low, just at a time (recovery from a major recession) when you would expect above-average growth. The average rate of growth since the Coalition took power is 1 per cent, compared to a historical average before then of over 2 per cent, and even higher growth rates during recovery periods.
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