CityAM: Much stronger productivity growth needed for long term real wage rises.

Head of Economic Research, Adam Memon, writes in City AM that much stronger productivity growth is needed before we see a return to long term sustainable real wage rises.

“Yesterday’s welcome fall in inflation unfortunately does not signal a return to sustainable real wage growth. Despite evidence of the labour market tightening, unless productivity grows, there will be nothing to support long-term real wage rises. The Office for Budget Responsibility’s (OBR) predictions of 2 per cent annual productivity growth have proven to be flights of fancy – and it is telling that, of the 7,726 words in the Budget speech, “productivity” was not mentioned once. In its latest report, the OBR confirms that even with strong output growth last year, productivity was exceptionally weak, and was just 0.2 per cent higher in the second half of 2013 than the first half. Productivity has failed to rise in line with demand, and there is little prospect of it growing at the pre-crisis trend without more ambitious supply-side reforms. The chancellor’s announcements on savings and pensions are a great start, but much more needs to be done before we see durable real wage growth. Adam Memon is head of economic research at the Centre for Policy Studies.”


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Date Added: Wednesday 26th March 2014