Why American Workers Aren’t Getting A Raise: An Economic Detective Story
By Jonathan Tepper
For the past few months, I’ve been trying to solve an economic puzzle: why are wages growing so slowly despite a growing economy and a booming stock market?
Workers are productive and helping the economy grow, yet unlike previous economic expansions, we are hardly seeing big increases in wages. Instead, companies are sitting on their cash or giving it back to their shareholders through dividends and share buybacks.
The answer of why wages are not growing mattered a lot to me. A few years ago, some friends and I started Variant Perception a company that predicts the ups and downs of the economy using leading indicators. Before growth or inflation turn up and down, there are generally clues that tell you what is coming. For example, building permits provide a good warning sign that growth will turn up or down. When the US stopped building as many houses in 2005-06, it predicted the recession of 2007-08.
Our leading indicator for wages normally provides a 15 month advanced warning of changes in wages. It is pretty good and all the ingredients are the same ones that have accurately worked for decades, yet the relationship has broken down. It was annoying me: why are wages not following growth? I should know the answer to why this is happening. I should have all the tools, yet something appeared broken in the economy.
All the signs that should lead to higher wages are present. Today, employers are saying that it is hard to find workers and many small businesses say they expect to raise wages, initial unemployment claims are extremely low. This should be an economy that is good for workers to get higher wages, yet wages stink.
After a lot of research, I think the answers are clear. Let’s look at the problem.
Companies are keeping more of the economic pie
The flipside of low wages is that companies have taken a record part of the economic pie. Corporate profits as percentage of Gross Domestic Profit (GDP) are near record highs and labor’s share of GDP is near record lows. You can see from the following chart that the chart looks like a giant alligator jaws. The divergence started in the early 1980s when the regular rise and fall of corporate profits and workers’ compensation broke down.
The trend in corporate profits is a mystery to economists and investment strategists. Jeremy Grantham, a well-known investor, has pointed out, “Profits are the most mean reverting series in finance. If margins don’t revert something has gone wrong with capitalism.”
Employee compensation as a percentage of GDP has been falling for years
(Source: Economic Cycle Research Institute)
Something has indeed gone very wrong with capitalism. In a competitive market, if a company is making a lot of money, other companies will get excited by the prospects of high profits and will enter the industry and compete. Eventually margins decline as more competitors fight each other. That is how dynamic, capitalist economies should be. Something is profoundly broken with capitalism if corporate profit margins do not revert to the historical mean.
Rising industrial concentration is a powerful reason why profits don’t mean revert and a powerful explanation for the imbalance between corporations and workers. Workers in many industries have fewer choices of employer, and when industries are monopolists or oligopolists, they have significant market power versus their employees.
The role of high industrial concentration on inequality is now becoming clear from dozens recent academic studies. Work by The Economist found that over the fifteen-year period from 1997 to 2012 two-thirds of American industries were more concentrated in the hands of a few firms.(i) In 2015, Jonathan Baker and Steven Salop found that “market power contributes to the development and perpetuation of inequality.”(ii)
One of the most comprehensive overviews available of increasing industrial concentration shows that we have seen a collapse in the number of publicly listed companies and a shift in power towards big companies. Gustavo Grullon, Yelena Larkin, and Roni Michaely have documented how despite a much larger economy, we have seen the number of listed firms fall by half, and many industries now have only a few big players. There is a strong and direct correlation between how few players there are in an industry and how high corporate profits are.(iii)
Workers are productive but are not getting paid for it
Given the gaping disparity in pay between the average worker and CEOs, you might imagine managers were superstars and the average worker was bad at his job. But that is hardly the case. While many executives go on the front cover of Fortune or Forbes and get all the credit for their company stock, worker productivity has been steadily rising for decades.
Unfortunately, earnings have not kept up with productivity increases. Workers are producing more goods with less labor, and companies are making higher profits, but the benefits are not being shared with workers. Notice that productivity growth has been rising in a straight line since the 1950s, but starting in 1980 hourly compensation has not risen much. The money from that gap doesn’t vanish into thin air, and it has to show up somewhere.
Disconnect between productivity and typical worker’s compensation
(Source: Economic Policy Institute)
Some economists have argued that the gap between wages and productivity is an illusion. They argue that much of the gap can be explained by year-end bonuses, which are not included in hourly pay, by healthcare costs, which doesn’t show up in a paycheck but the worker benefits from, and by stock options, which also doesn’t show up in a paycheck. However, we can discount these explanations. Healthcare, bonuses and options are a real expense to companies, and if companies were getting hit with these costs instead of wages, it would show up in corporate profit margins. Today, corporate profit margins would not be at record highs. If the divergence between wages and productivity is real, the difference should clearly shows up in corporate profits, and it does.
Companies have more market power
The economists Jan De Loecker of Princteon University and Jan Eeckhout of the University College London found that average markups, have surged since the early1980s. The average markup was 18% in 1980, but by 2014 it was nearly 70%. Higher markups suggest an increase in what economists refer to as “market power,” which is the result of more highly concentrated industries.
A markup may sound like a very technical term, but you see it in everyday life. The best example is in luxury goods, where the right logo on a handbag will make the leather sell for a lot more than it costs to make. Part of what you’re paying for is status and association.
De Loecker and Eechkhout noted that The rise in markups explains lower wages almost perfectly. They also found that “the rise in markups naturally gives rise to a decrease in the labor share, a decrease in the capital share, a decrease in low skilled wages, a decrease in labor market participation, and decrease in job flows.”(iv)
The Evolution of Average Markups (1960-2014)
(Source: Jan De Loecker, Jan Eeckhout)
Market power has been rising in many industries. Americans have the illusion of choice, but in industry after industry, a few players dominate the entire market:
The list of industries with dominant players is endless.
After a wave of mergers, there is simply less competition.
Merger Manias 1890-2015: Merger Waves Are More Frequent and Bigger
(Source: Pine Capital)
Over half of all public firms have disappeared over the last twenty years. We’ve seen a collapse of publicly listed companies. Astonishingly, according to a study by Credit Suisse, “between 1996 and 2016, the number of publicly-listed stocks in the U.S. fell by roughly 50% — from more than 7,300 to fewer than 3,600 — while rising by about 50% in other developed nations.”(i) It is not lower growth or the global Financial Crisis that caused fewer IPOs. This is distinctly an American phenomenon.
The decline in listed companies has been so spectacular that the number lower is than it was in the early 1970s, when the real GDP in the US was just one third of what it is today.(ii) America’s economy grows ever year, but the number of listed companies shrinks. On this trend, by 2070 we will only have one company per industry.
Many workers are dealing with a monopsonist
In a monopoly, there is only one seller, while in a monopsony, there is only one buyer. The extreme example of a monopsony is a coal town in West Virginia, where the only buyer of labor is the coal company.
Large parts of America are dominated by monopsonies. In a comprehensive study, Marshall Steinbaum, Ioana Marinescu, and Jose Azar looked across all industries and commuting zones in the US to measure how concentrated employers were. They found that most labor markets are very concentrated and that it has a strong negative impact on posted wages for job openings.(v) They showed that going from a very competitive to a highly concentrated job market is associated with a 15-25% decline in wages.
The study shows that labor monopsony is not only pervasive across the US, but is especially so in non-metropolitan areas. This makes intuitive sense – smaller towns mean fewer employment options.
Areas with fewer employers have lower wages
(Source: Roosevelt Institute)
In a monopsony, workers have little choice in where they work and have little negotiating power for wages with employers. In a healthy economy, many firms would be competing equally for workers and would be incentivized to entice new hires with higher wages, better benefit packages, and few restrictions on their next career moves. But monopsonies make it easier for firms to depress worker wages. The classic example of this is a coal-mining town, where the coal plant is the only employer and only purchaser of labor. Today, in many smaller towns, WalMart is the new coal plant – and is the only retail company hiring.
Many firms are able to suppress the bargaining power of labor by making labor markets less competitive. Economists Jason Furman and Alan Krueger argue that firms in concentrated industries are able to suppress wages through collusion and non-compete agreements that cover 20% of American workers.(vi)
Many workers live in a rural area with less choice of jobs
Today, the story of America is largely the story of two economies – rural and urban. It was not always this way. The antitrust movement of the 1940s not only targeted giant firms, but was also an attempt to weaken regional centers that had amassed too much power. This largely worked and, by the mid 1970’s, there was a fairly uniform American standard of living – being middle class in the Mideast was pretty much the same as middle class in New England. However, in the 1980s, many of the policies that helped ensure this balance between regions was neglected or reversed.
A great divide formed between rural and metropolitan areas in the US. In 1980, if you lived in Washington D.C., your per-capita income was 29 percent above the average American; in 2013 you would be 68 percent above. In New York City, the income was 80 percent above the national average in 1980 and skyrocketed to 172 percent above by 2013.(vii) Power and money began concentrating in urban centers across the country as a rural ‘brain drain’ occurred.
Major cities attract diverse talent and many corporations, which must bid competitively for workers. Workers living in these cities make significantly more money than workers elsewhere. There is power in numbers, and nurses who have 5 metropolitan hospitals to choose from will make more money than those who work in a town with only one hospital.
Rural Areas Are Lagging
(Source: Bloomberg, Shift: The Commission on Work, Workers, and Technology)
CEOs are getting paid a lot more than workers
In the US CEO pay has exploded. From 1978 to 2013, CEO compensation adjusted for inflation increased 937%. By contrast, the average worker’s income grew by a pathetic 10% over the same period. To put the change in perspective, the CEO-to-worker pay ratio was 33-to-1 in 1978 and grew to 276-to-1 in 2015.(viii) The US is a big outlier in terms of how vastly overpaid the top corporate officers are vs the average worker. For CEOs in the UK, the ratio is 22; in France, it’s 15; and in Germany it’s 12.(ix) US CEOs are vastly overpaid no matter how you look at it.
Rising CEO-to-Worker Compensation Ratio
(Source: Economic Policy Institute)
There is no countervailing force to high CEO and low worker pay
Unions maintained an important part in American working life for decades, but then declined again. In 1983, about 1 in 5 Americans were part of a union; today, only 6.4% of private sector workers in America are unionized and less than 11% of total workers.(x) This represents a considerable decline in the ability of workers to organize. Unions, though controversial, provided a needed forum for workers to band together and advocate for their collective rights.
Falling Union Membership and Lower Middle Class Share of Income
(Source: The Atlantic)
Inequality is inversely related to union membership. If you plot the percentage of national income going to the top 10%, as you can see it is almost the perfect mirror image. When union membership is low, a higher percentage of income goes to the top 10%. This may help, in part, to explain recent trends in income inequality.
Union Membership vs Income Distribution to Top 10%
(Source: The Atlantic, Emin M. Dinlersoz and Jeremy Greenwood) (xi)
Managers collectively represent thousands if not millions of shareholders. Union leaders may likewise represent thousands if not millions of workers. The strength of unions, however, does not come merely from concentrating forces but from the real threat of strikes. There is an extremely high correlation historically between the index of the number of strikes in the US with the wage growth of workers. Today, strikes are extremely rare, and this in part explains why wages are so low.
Wage growth closely associated with strikes
(Source: Taylor Mann, Pine Advisors)
I’m writing a book on monopolies, monopsonies and how they are affecting startups, workers’ pay and economic growth. This is just a small part of some of the ideas in the book.
If you liked this post, let me know and I’ll keep you posted on further charts, blog posts and let you know when my book is coming out.
(ii) Baker, Jonathan and Salop, Steven, “Antitrust, Competition Policy, and Inequality” (2015). Working Papers. http://digitalcommons.wcl.american.edu/fac_works_papers/41/
(iii) Grullon, Gustavo and Larkin, Yelena and Michaely, Roni, Are U.S. Industries Becoming More Concentrated? (August 31, 2017). Available at SSRN: https://ssrn.com/abstract=2612047
(iv) Jan De Loecker, Jan Eeckhout, “The Rise of Market Power and the Macroeconomic Implications”, (August 2017) NBER Working Paper No. 23687 http://www.nber.org/papers/w23687
(i) Credit Suisse, The Incredible Shrinking Universe of Stocks: The Causes and Consequences of Fewer U.S. Equities http://www.cmgwealth.com/wp-content/uploads/2017/03/document_1072753661.pdf
(ii) Grullon, Gustavo and Larkin, Yelena and Michaely, Roni, Are U.S. Industries Becoming More Concentrated? (August 31, 2017). Available at SSRN: https://ssrn.com/abstract=2612047
(v) http://rooseveltinstitute.org/how-widespread-labor-monopsony-some-new-results-suggest-its-pervasive/ and Azar, José and Marinescu, Ioana Elena and Steinbaum, Marshall, Labor Market Concentration (December 15, 2017). Available at SSRN: https://ssrn.com/abstract=3088767
(vi) Why Aren’t Americans Getting Raises? Blame the Monopsony, Jason Furman and Alan B. Krueger Wall Street Journal https://www.wsj.com/articles/why-arent-americans-getting-raises-blame-the-monopsony-1478215983
(vii) Longman, Phil. “Why the Economic Fates of America’s Cities Diverged.” Nov 28, 2015. https://www.theatlantic.com/business/archive/2015/11/cities-economic-fates-diverge/417372/
(x) Bureau of Labor Statistics. “Union Members Summary.” January 26, 2017. https://www.bls.gov/news.release/union2.nr0.htm
(xi) Ebersole, Phil. June 12, 2012. https://philebersole.wordpress.com/2012/06/12/the-decline-of-american-labor-unions/
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Blog resource for 6th Form, with contributions from teachers and students.
Showing posts with label macroeconomics. Show all posts
Showing posts with label macroeconomics. Show all posts
Wednesday, 7 March 2018
ABSOLUTELY ESSENTIAL READING!!!
This is macro and micro, and addresses a critical issue - why aren't wages going up? You can jump to the bits you understand, and still get really good material for an essay - monopsony employers, union power, inequality, multiplier - it hits right on the nail one of the central questions that need to be answered in order to get some economic stability again. Very US-centric, but main points hold elsewhere:
Saturday, 4 March 2017
An anlaysis of monopolistic tendencies via Uber & Snapchat
Have a look at this commentary on the economics and business models of tech firms; useful context and evidence for micro, plus a couple of juicy snippets for macro - NB CapX is a great source of analytical comment, across a wide range of topics. Use this link to have a look, and [perhaps] subscribe to the weekly recap:
The new titans of tech?
Two tech companies, two contrasting trajectories. Snap (formerly Snapchat) hit the headlines this week when a post-IPO bidding frenzy saw it soar to a $34 billion valuation.
Uber, meanwhile, saw its reputation and potential valuation plummet after a blog about workplace sexism unleashed a firestorm of criticism, culminating in grovelling promises from the CEO to be a better leader and a better human being.
Yet beneath the surface, there are actually striking similarities between the two firms. Both are enormously valuable. Both are losing money hand over fist. And both manage to reconcile the two because they promise investors untold riches, delivered via monopolising the market.
Let’s take Uber first. Its price advantage over the cab firms, it turns out, doesn’t just come from the fact that its drivers aren’t formal employees or that it escapes much of the traditional regulation (both of which have been and will be the subject of innumerable court cases). It comes from subsidy: overall, Uber’s customers only pay 41 per cent (£) of the cost of their trips. Effectively, its investors are giving us a handout every time we use the service.
The idea, of course, is to gain market share and at some point make a profit - either because of efficiencies of scale, or because of whizzy new technology such as self-driving cars, but more probably through driving enough of its rivals from the marketplace to ratchet up prices again. Indeed, a widely read series of articles by Hubert Horan recently argued that this is third option is the only one that makes any kind of sense - but also that it is doomed to failure.
I’m much more charitable than Horan when it comes to Uber’s worth - it has definitely exposed and exploited inefficiencies in the marketplace, not to mention saved me quite a bit of cash. But he’s right that its ultimate goal is monopoly. Because that’s how the tech world works.
Take Snap, for example. It justifies its sky-high valuation by promising that it will have a monopoly (or very significant share) of an entire generation’s attention span - that generation being those who are actually able to understand what the hell it does, apart from producing terrifying face-swapped images of Jeremy Corbyn.
But in Snap’s case, its main obstacle is another, much larger company which has a very similar goal: Facebook.
Recently, Facebook’s Instagram subsidiary launched an unashamed clone of Snapchat called Stories. The aim was to cut Snap’s growth off at the knees - and it seems to have worked. Talk of Snap as the next Facebook has given way to worried discussions about whether it is in fact the next Twitter - that is to say, a breakthrough firm with millions of customers but no monopoly position, and therefore no profits, rather than an advertising-hoovering, attention-devouring leviathan.
I’ve written before on CapX about how the structure of capitalism is increasingly tending towards monopoly, or at least oligopoly. But because of the network effects involved, this tendency is particularly pronounced in tech. Indeed, the more ambitious your plans to disrupt and dominate, the greater the market opportunity, and the more eager the venture capitalists.
For capitalism to best serve the consumer, it needs the level playing field that permits cut-throat, relentless competition. But how to achieve that in markets which increasingly operate on a winner-takes-all basis?
Ben Thompson of Stratechery, one of the most consistently interesting analysts of the digital ecosystem, recently argued that Facebook has become too powerful for anyone’s good, not least given its additional control of WhatsApp and Instagram, and would - in an ideal world - be brought down to size.
For policy-makers and regulators, this is going to be one of the great challenges of the coming years. Snap and Uber may fulfil their founders’ lofty goals, or come crashing down to earth. But the question of how big is too big will continue to vex the would-be trustbusters for many years to come.
Below you'll find our top five stories from the past week - and remember to check in with CapX for our exclusive coverage of the UK Budget this coming week. We've got some great pieces lined up for you.
Robert Colvile
Editor, CapX
Monday, 14 September 2015
Y12 study & reference resource
You will find links to EVERY topic in here; use it for reference, and for revision:
http://beta.tutor2u.net/economics/reference/as-macroeconomics-study-notes-topic-listing
http://beta.tutor2u.net/economics/reference/as-macroeconomics-study-notes-topic-listing
Monday, 20 April 2015
Five things you could use in essays:
From the Daily Telegraph:
By Matthew Lynn
38 Comments
Complexity is a far bigger problem than tax avoidance, which all the parties bang on about endlessly, even though the UK is hardly a country with much of a culture of dodging taxes. All the evidence suggests simpler tax systems generate more cash for the Treasury, and make it easier for businesses to grow. High but simple taxes are still better than high, complex ones – simplification is more about stripping out red tape than cutting the overall amount paid.
Second, the euro. Britain’s biggest economic problem by far is that our largest neighbour and biggest trading partner has locked itself into a dysfunctional currency system that is trapped in a depression. The biggest risk over the next five years is a chaotic collapse triggered by an accidental Greek exit from the currency. Who knows how much damage that could do to the UK economy? It could knock 3pc or 4pc off our GDP. There is not much point in the UK just crossing its fingers and hoping for the best. Greece clearly won’t make it within the single currency.
We should be coming up with a plan for it to get out, with generous loans from the US, the IMF, and indeed ourselves, to get the country through a difficult period. It is going to happen one day, so it might as well happen in an orderly, planned way. If we put that forward, we would be taking out the number one economic risk we face.
Third, robotics. If you haven’t already got one of the whizzy new robot vacuum cleaners, you soon will. It will – sort-of – tidy up your house. Robotic chefs that will whip up a meal for you are on the way, while the driverless car that will take the kids to their ballet classes and collect you from the pub after a few drinks is just around the corner.
Robotics will soon be the biggest technology since the internet, and arguably a lot bigger. But both create two challenges. How do we make the UK a world leader in what will be a huge industry? (One answer – being one of the first countries to license driverless cars would be a help). And how do we cope with the inevitable disruption to traditional careers that robotics will create, and re-skill people so that the transformation does not simply create lots of unemployment? Neither will be easy – but the earlier you start discussing it, the better.
Fourth, our trade deficit. The UK’s trade deficit hit £2.86bn last month. As a percentage of GDP, it is now above 5pc, and it is higher than at any point since the Lawson boom of 1989. Now, you can argue that in a world of floating exchange rates, and with free movement of capital, trade deficits don’t matter any more. And maybe you’d be right. The trouble is, do you really want to bet your economy on that theory? Every country that has run deficits on that scale has been plunged into a crisis sooner or later – Spain was the latest example, with deficits of close on 10pc of GDP before the euro crisis overwhelmed it.
The truth is, we’d be wise to start planning ways to get that down, targeting a cheaper currency if necessary. While we are at it, we might want to have a discussion about whether we want near-zero interest rates forever, with all the potential distortions of the market they create. Or would we prefer an economy that rewarded saving – which, as it happens, might have a smaller deficit as well?
Finally, an ageing workforce. As life expectancy increases, and pension systems come under greater pressure, we will need to do more to encourage those in their sixties and seventies to work longer. Some evidence from the US shows they can be more productive than younger people, because they have had more time to develop the soft skills such as communication and teamwork that are valued by companies. But businesses will need to be encouraged to get them back into the workplace, and pension systems may well need to be reformed to ensure it is worth their while. How productive the those aged 65-75 are, and what percentage of them are in employment, may well be the key determinant of how prosperous our economy is in the 2020s.
Right now, only 10pc of the over-65s are working nationally, although it is 12pc in London – and it is probably no coincidence the capital is one of the richest parts of the country. If we could get that up to 20pc, or even 50pc, it would make a huge difference to GDP.
Each of these issues is probably more important than most of the stuff being discussed during the campaign. They are certainly more important than rabbit hutches or cycleways. They might even wake up an electorate often disengaged from politics. But the main parties are remaining silent on all of them.
By Matthew Lynn
4:44PM BST 19 Apr 2015
38 Comments
Protecting the NHS. Improving education. Fighting climate change. Devolving power to the regions. Controlling immigration. Lots of very familiar issues feature in the main parties’ election manifestos, to be debated in the run-up to May 7.
Even some fairly minor issues will get their few minutes in the spotlight. The Greens have helpfully raised the issue of rabbit hutches, and whether they are cruel or not. The Liberal Democrats are promising to investigate a cycleway to run alongside the proposed HS2 high-speed rail link from London to Birmingham. If you don’t have much else to do, you could easily fill up the coming days uncovering all kinds of minor and fiddly initiatives that one party or another is cooking up.
And yet, many equally important issues will not be discussed at all. If you just take the economy, there are five major discussions, each with significant choices to be made, that are just as crucial as anything any party is talking about. Such as? Tax simplification. The euro crisis. Robotics. Our trade deficit. And an ageing workforce.
One of the striking aspects of the political debate is how wealth creation seems to have been largely forgotten. There are plenty of promises of more spending, and much debate about whether we should move a bit faster or a bit slower on reducing the deficit. But how might we create a richer economy? Or what challenges might threaten our prosperity? No one seems bothered. But there are plenty of trends that we should be thinking harder about. Here are five:
One of the striking aspects of the political debate is how wealth creation seems to have been largely forgotten. There are plenty of promises of more spending, and much debate about whether we should move a bit faster or a bit slower on reducing the deficit. But how might we create a richer economy? Or what challenges might threaten our prosperity? No one seems bothered. But there are plenty of trends that we should be thinking harder about. Here are five:
First, tax simplicity. Whether you think the state should be spending 35pc or 45pc of GDP, which is about the range of options on offer, our tax system has become horrendously complex. It started under Gordon Brown, but has continued under the Coalition. Tolley’s Tax Guide now comes in at a whopping 16,000 pages, more than even the smartest accountant can comprehend.
Complexity is a far bigger problem than tax avoidance, which all the parties bang on about endlessly, even though the UK is hardly a country with much of a culture of dodging taxes. All the evidence suggests simpler tax systems generate more cash for the Treasury, and make it easier for businesses to grow. High but simple taxes are still better than high, complex ones – simplification is more about stripping out red tape than cutting the overall amount paid.
Second, the euro. Britain’s biggest economic problem by far is that our largest neighbour and biggest trading partner has locked itself into a dysfunctional currency system that is trapped in a depression. The biggest risk over the next five years is a chaotic collapse triggered by an accidental Greek exit from the currency. Who knows how much damage that could do to the UK economy? It could knock 3pc or 4pc off our GDP. There is not much point in the UK just crossing its fingers and hoping for the best. Greece clearly won’t make it within the single currency.
We should be coming up with a plan for it to get out, with generous loans from the US, the IMF, and indeed ourselves, to get the country through a difficult period. It is going to happen one day, so it might as well happen in an orderly, planned way. If we put that forward, we would be taking out the number one economic risk we face.
Third, robotics. If you haven’t already got one of the whizzy new robot vacuum cleaners, you soon will. It will – sort-of – tidy up your house. Robotic chefs that will whip up a meal for you are on the way, while the driverless car that will take the kids to their ballet classes and collect you from the pub after a few drinks is just around the corner.
Robotics will soon be the biggest technology since the internet, and arguably a lot bigger. But both create two challenges. How do we make the UK a world leader in what will be a huge industry? (One answer – being one of the first countries to license driverless cars would be a help). And how do we cope with the inevitable disruption to traditional careers that robotics will create, and re-skill people so that the transformation does not simply create lots of unemployment? Neither will be easy – but the earlier you start discussing it, the better.
Fourth, our trade deficit. The UK’s trade deficit hit £2.86bn last month. As a percentage of GDP, it is now above 5pc, and it is higher than at any point since the Lawson boom of 1989. Now, you can argue that in a world of floating exchange rates, and with free movement of capital, trade deficits don’t matter any more. And maybe you’d be right. The trouble is, do you really want to bet your economy on that theory? Every country that has run deficits on that scale has been plunged into a crisis sooner or later – Spain was the latest example, with deficits of close on 10pc of GDP before the euro crisis overwhelmed it.
The truth is, we’d be wise to start planning ways to get that down, targeting a cheaper currency if necessary. While we are at it, we might want to have a discussion about whether we want near-zero interest rates forever, with all the potential distortions of the market they create. Or would we prefer an economy that rewarded saving – which, as it happens, might have a smaller deficit as well?
Finally, an ageing workforce. As life expectancy increases, and pension systems come under greater pressure, we will need to do more to encourage those in their sixties and seventies to work longer. Some evidence from the US shows they can be more productive than younger people, because they have had more time to develop the soft skills such as communication and teamwork that are valued by companies. But businesses will need to be encouraged to get them back into the workplace, and pension systems may well need to be reformed to ensure it is worth their while. How productive the those aged 65-75 are, and what percentage of them are in employment, may well be the key determinant of how prosperous our economy is in the 2020s.
Right now, only 10pc of the over-65s are working nationally, although it is 12pc in London – and it is probably no coincidence the capital is one of the richest parts of the country. If we could get that up to 20pc, or even 50pc, it would make a huge difference to GDP.
Each of these issues is probably more important than most of the stuff being discussed during the campaign. They are certainly more important than rabbit hutches or cycleways. They might even wake up an electorate often disengaged from politics. But the main parties are remaining silent on all of them.
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