Population growth and earnings

Unemployment goes down but wages are not really rising – why?

According to Larry Elliot in the Guardian.

There are, though, three other possible explanations, which may be acting singly or collectively to keep earnings low. The first is that the supply of labour is increasing both as a result of population growth and immigration.

The availability of work means Britain is acting as a jobs magnet for citizens of other EU countries. Between the final quarter of 2015 and the final quarter of 2016, the number of people working in Britain rose by 532,000. Almost half that increase – 254,000 – was accounted for by non-UK nationals. There was a 215,000 increase in employment for workers from other EU countries. Employers don’t need to raise pay if they can employ young willing workers from eastern Europe at the going rate.

The second explanation is that the jobs being created by the economy tend to be ones that don’t pay all that well: shop workers, hotel staff, cleaners. This, according to the Bank, is affecting the growth rate of earnings.

A third factor is the squeeze on public sector pay, which has occurred despite higher levels of unionisation than in the rest of the economy. The public sector accounts for 18% of total employment, but earnings in the final three months of 2015 were growing at an annual rate of 1.3%.


There we have it increasing the labour supply is not good for earnings. Is that why earnings in Cornwall fail to go up due to an ever expanding supply of labour?

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