I think the Resolution Foundation may well be where the revolution begins. It is now clearly asking the questions that matter about this recovery, and seems to have the resources to answer them well. Personally, I think their answers will lead to the door of the Bank of England, and what it targets – the ultimate culprit in the melodrama, according to this blog.
The latest example is the RF work on the missing four million – the self employed who are nowhere to be found in many wage statistics. Given how half the growth in employment since the nadir has come so disproportionately from those working for themselves, this is quite an omission.
Gavin’s Guardian piece argues that the omission accounts for a 20-30% underestimation of the fall in earnings. Such a staggering number lends support to the view that the productivity fall is partly about labour market behaviour. For any fixed national income, our labour market is relentlessly good at getting people into work, in whatever form they can. Hence the numerator stagnates, the denominator expands, the ratio (productivity) falls. The damning residual.
One of the best analyses in this area comes from Morgan Stanley (no link, but referred to by Polly Toynbee here). It claims that 80% of all employment gains since 2007 are in this category, and credit: the weak economy, some government schemes, the grey economy, immigration and older workers as lying behind this trend. Self employment is disproportionately part time and less well paid – the total amount of money going to SE workers has actually fallen, astonishingly.
So the “labour intensive low productivity” equilibrium is NOT happening in the big corporate sector. Their big punchline: the MPC should see there is more spare capacity than they realise. Don’t tighten!
Gavin also aims some of his fire at the Bank, but kindly accuses them merely of having incomplete information. I personally think he could go further. The Bank’s lofty response to all this might be that they know what their job is, it is to keep CPI on a 2% track, and they know perfectly well how it responds to their monetary impulses, thank you very much. Within the narrow terms of their remit they may be right. They can plug any information they want into their spare-capacity-ometer and go from there.
For me what Gavin and Morgan Stanley demonstrate is that the Bank is just pursuing the wrong thing. What all these figures demonstrate is that national income in cash terms has been growing too slowly. In our case, it divides out into a greater quantity of low paid marginal work. Such workers might well come back into better jobs when the recovery really motors. What will happen with inflation then is uncertain. But compared to the big gap there is to fill in missing incomes, how much does it matter?
The Resolution Foundation is relentless in calling for greater prosperity for low paid people. Until the entire envelope of national income is expanded, this will not happen. The Bank is the only entity with a chance of controlling that. It is time that they targeted it too.