Unbalanced growth leaves workers behind
Here is a simple chart that exposes an ugly truth. The chart shows Treasury’s projections for change in two figures over the next few years. One is real GDP growth per capita; the average per person stake in our economy. The other is real wage changes, which I calculated by subtracting the CPI inflation rate from the nominal change in wages.1
The chart shows that the next three years will see real growth in the economy overall far outstripping growth in real wages. While there is modest redress for wage earners in the following two years, it is not enough to undo the harm. Across the whole forecast period, real GDP per capita is slated to grow by 8.5%, while real wages grow by only 5.8%.
What does this imply about the nature of our economy? Two things jump out at me straight away:
If, per person, the economy is growing substantially faster than wages, it more or less implies that wages are falling as a proportion of our economy.2 Which isn’t consistent with the idea that the wealth is shared around during good times.
If the economy is growing faster than wages, it also implies that other ways of making money, such as – say – real return on capital investments, perform substantially better than both wage growth and overall GDP per capita growth. Gee, I wonder where I’ve heard someone suggesting that pattern can cause big structural problems, based around inequality…
Overall, these figures show how unbalanced our economic performance will be under National’s economic settings. There is growth, for sure, but if you earn a wage you won’t see anywhere near as much of it as if you hold capital. And, as I showed the other day, if you have a mortgage, you probably aren’t going to gain anything at all over the next five years, and are likely to go backwards instead.