Actual economic effects...

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Long term borrowing rates have come down as brexit appeared more likely, 10yr ones from 2% down to 1.09% post brexit. Similarly all the European long term borrowing rates rose sharply. Lesson? We are a less risky and more credit worthy outside the EU than in.

One ratings agency did drop our credit worthiness, though oddly the last time they did was out of fear of Eurozone contagion. Seems completely at odds with the long term borrowing rates, which matter quite a great deal given our debts.

The pound dropped, quite significantly. It appears however that there was some 'unusual' activity in the market which forced it down whenever the Leave campaign polled well. To the extent of trying to sell it when there were no buyers.

Some people lost a great deal of money, probably dwarfing the millions contributed to the remain campaign, lets hope it was Goldman Sachs and JP Morgan. :)

May I ask economists here a question? Not directly related to Bexit.

There's been coverage recently of UK low wage growth being on a par with Greece since the financial crisis.

So the obvious point is that our employment levels hadn't suffered - surely the back hole that the UK found itself in meant either wage surpression or mass unemployment?

Some commentators have said that the countries with the biggest employment increases, like Poland, Hungary and Germany, are also at the top of the table for wage increases.

But then those countries not have a recession of the depth and length that UK did are they actually comparable?

Haven't not hadn't ^

Interesting question Gloria. I can't answer, but am keen to hear others thoughts on this.

Haven't we had wage supression though, by the mechanism of e.g. zero hours contracts, plus a moratorium on rises within the public sector?

We have also had a certain massaging of the employment figures by people forced into 'self employment' which is in reality self employment by name only, or in some cases is genuine self employment, but the person involved would really prefer a permanent waged job?

The issue is that is it is Real wage growth, which is adjusted for inflation, as very few people have had an inflationary level wage rise since 2008/9 this would be worked out within it.

As during the period 2008 -2016 we had inflation levels of between 3 = 5% plus moratoriums on wage rises in both public and private sectors for a number of years, this would explain this figure.

Also to compare to other counties also means we need to have an idea of what inflation was like in them for the period analysed.

We know that here, because of rising fuel costs/houshold bills etc that inflation was high and that food inflation was also high.

Now in Poland, it might be (and I'm not going to dig through Polish government economic analysis for this) that they weren't as badly effected by inflation so wage rises from 2008 -2016 mean that it went up 23% in real terms, as something like 90% of food consumed in Poland is made in Poland then this would probably reduce food inflation for example. Low inflation combined with an above inflation pay rise each year of 2.8% would end with their real terms increase.

So is it the case that we can't compare the UK with Hungary, Poland and Germany, because their recession wasn't as bad as ours?

I'm not really sure whether the low wage increase is due entirely to the recession in the UK, or whether it's partly caused by the extent of the austerity programme - public sector pay freeze, proliferation of low pay insecure jobs, like 0 hours contracts?

No we can, because its fine to compare economic performance.

Remember its not low wage increases, its in real terms, so adjusted for inflation, for example in 2011 inflation was at , 3.2%, 4.4 %, in 2012 at 3%, in 2013 2.5%, if in each of these years the majority of people received below inflation pay raises it will see our real terms wage increases to 2016 fall quite dramatically.

Thanks very much for your explanations.

Is it possible to get stuck in a low wage low productivity cycle? I can't really see how we're going to get out of it now, given Brexit's impact on recovery.

Which is rather why I was asking.

GloriaGaynor

1. I am guessing one of the reason is that Poland exports their labour so that lead to a tighter labour market.

1. The financial sector wage growth contribute significantly to the overall wage growth.

Poland has been doing pretty well. All numbers estimated from line graph. PLN GBP today is PLN5.15 to £1

Poland Average Gross Wage per month (PLN)
YEAR WAGEs/MonthPLN Annual Inflation
2006 2500 1%
2007 2700 2.2%
2008 3000 4%
2009 3200 4%
2010 3300 3.8%
2011 3400 3.5%
2012 3600 4%
2013 3700 2%
2014 3800 0.5%
2015 4000 -1.5%
2016 4200

GloriaGaynor

1. I am guessing one of the reason is that Poland exports their labour so that lead to a tighter labour market.

1. UK financial sector wage growth contribute significantly to the overall wage growth. No bumper banker's pay rises/bonuses and the overall figure is affected.

1. Tax credit and other benefits make up a significant portion of many people's real world 'wages'. There is no incentive to work more than 16/24 hours and create a large supply of people willing to work for minimum wages and then get the wages doubled through tax credits.

Poland has been doing pretty well. All numbers estimated from line graph. PLN GBP today is PLN5.15 to £1

Poland Average Gross Wage per month (PLN)
YEAR WAGEs/MonthPLN Annual Inflation
2006 2500 1%
2007 2700 2.2%
2008 3000 4%
2009 3200 4%
2010 3300 3.8%
2011 3400 3.5%
2012 3600 4%
2013 3700 2%
2014 3800 0.5%
2015 4000 -1.5%
2016 4200

"3. Tax credit and other benefits make up a significant portion of many people's real world 'wages'. There is no incentive to work more than 16/24 hours and create a large supply of people willing to work for minimum wages and then get the wages doubled through tax credits."

Which as only about 3.3 million of working households are eligible for tax credit, all claiming at different variations for different rates. For this small percentage of working households to influence the average real wage rise to a great extent would be impossible.

As you have stated the Polish wage rises have been good ( which of course gives a good argument against those who say people are coming here because their own economy is doing badly), but Poland has been nvesting in its self, developing well, and of course doesn't have the same levels of consumer debt that we do, which means that its workers have more freedom to be unemployed for short periods of time without being forced into penury.

You are a complete Tory aren't you!

Smallfox, I don't think people are saying 'people are coming here because the Polish economy is doing badly'. The fact is that wages are much lower in Poland than they are here so they are coming here for higher wages, even with recent wage increases it is still much more advantageous for many Polish people to come here and work.

I still don't really understand how Poland, which is in the same EU economic band as West Wales and Cornwall, has managed better wage growth than us. Hungary too which is in the same band as Portugal. Is it simply because the financial crisis hit the UK so badly? And we took the hit on wages rather than unemployment? Or is it partly the effect of UK austerity policies?

Sorry if I'm repeating the questions, I haven't fully understood the answers in truth.

The reason I'm asking is because, if all current indicators are correct and we go into recession, I can't see a way out of low wage growth cycle.

The fact is that wages are much lower in Poland than they are here

That's partly why I don't understand how they've managed more wage growth. They're a poorer country and the wages are lower.

What has the UK been doing that our wages didn't grow more in that time?

"You are a complete Tory aren't you!"
I am afraid that is a incorrect conclusion based on your own bias.

As for tax credit, it is a guess. But I am sure you understand the concept of how prices and wages are set at the margin. Happy to explain that if require an explanation for that.

Corcory
Exactly. Thank you. So they are on around £800 per month/£9600pa vs £27000 in UK.

GloriaGaynor

"UK been doing that our wages didn't grow more in that time?"

Partly law of large numbers. It is far harder to grow at 5% once you are already in the top 10% wages in the world (£27k pa). China had wages growing at 50%pa for a few years from a very low based.

Further, your question about wage grow is a very good questions that is intricately linked to the 'UK productivity conundrum' (as productivity tend to be measured in £ rather than units). This is a topic that had been debated ad nauseum by economist and in the financial papers. Several speculations are as what I stated above, but honestly, no one knows the definite answers.

"it is still much more advantageous for many Polish people to come here and work."

Cost of living is much lower in Poland, people come here for short term experiences or for longer because they have specific skills that are in demand.

Topsy, if you will come out with statements like the one you did you're going to sound like a Tory.

As said, the effect of 3 million households recieving tax credits is not going to effect the real wage rises. In fact large wage rises at the top, which are many times inflation are likely to have more effect.

" I still don't really understand how Poland, which is in the same EU economic band as West Wales and Cornwall, has managed better wage growth than us. Hungary too which is in the same band as Portugal."

Polish economic growth has been consistently higher than the UK's since 2006 or before. Where we in that time have never managed to make it above 1% , Poland's economic growth has been consistently so, they were also not as effected by the credit crunch as they are not as reliant on consumer credit. At the height of the crunch the Polish economy fell from 2% growth in 2008 to - 0.5% growth in 2009 and went back to above 1% growth in 2010.

Where as the UK fell from 0.5 % growth in 2008 to -2 % and only back up to about 0.4% growth in 2010.

The Polish economy is simply doing better, they are in the same economic band as deprived areas because of the fact that they need to catch up in some ways because of the lack of development under communism, yet is still listed as a country of very high economic development, in the top 50 of the world along with the UK.

Thanks so much everyone, I really understand it now.

Sorry for the thread derail.

How many households are there in the UK? We have a population of about 65M, so does that mean we have about 20M households? If so, 3.3M is a reasonable percentage of all households.

Topsy, I don't understand how wages and prices are set at the margin (or if I ever did, it has been 25 years since I sat in an econ class). I would actually appreciate you explaining it.

its 16.5%, but remember that its households, not individual earnings, its still going to have less sizeable effect on real wage growth than say the public sector pay freeze and then 1% increases, seeing as about 5.5 million individuals are employed there.

Also because in the vast majority of people have had below inflation level pay rises between 2008 and 2016, with wages only growing above inflation in 2015 because inflation was so low.

NIESR now saying we will avoid recession with a boost in trade offsetting slowdown in domestic demand and investment.

Funny how some 'experts' seem to now agree that the world has not come to an end.

My impression is that brexit is falling off consumers' radar, while businesses are starting to realise that brexit will be a long time coming (if it ever does) and that in the meantime, nothing has changed.

What this means presumably is that while inward investment will be affected, because the risk of brexit is still there, and the City may take steps to reduce its exposure by shifting some jobs abroad, other parts of the economy may be relatively unaffected.

We are likely to remain in the EU for at least another several years if not for the foreseeable future, so at this point, there is no "brexit effect" - just a "referendum effect".

Is it possible to get stuck in a low wage low productivity cycle? I can't really see how we're going to get out of it now, given Brexit's impact on recovery.

I'm not sure that brexit will have much impact on this. As far as I can see, the problems are not brexit related, but linked to (a) lack of skills and training and (b) labour being easy to hire and fire, meaning that there is little incentive to make investments in technology when you can employ labour more cheaply. Brexit, if it ever happens, won't affect the former, and is likely to affect the labour market in offsetting ways (for eg, a lower supply of labour being offset by weaker protection of workers' rights).

The UK productively gap is very large - the French get a lot of stick for their labour market, which is indeed very inflexible, but French workers could do a four day week and still be more productive than UK workers.

smallfox2002

I think we can agree on Poland is doing well relatively and UK not so well relatively.

"if you will come out with statements like the one you did you're going to sound like a Tory. "
I am afraid I disagree with this. This is just your perception. Is tax credit a topic that is 'not polite' to talk about?

EllyMayClampett
Prices and wages set at the margin. Imagine there are 10 vacancies and there only 8 are filled. To fill the other 2, the employer will have to raise wages in order to fill them. The new wage now becomes the 'new standard' (i.e. the market price) and will affect wage demands and future wages advertised.

On the other hand, if the workers know that there are always 2 available workers (subsidised or otherwise) who can be recruited at the lower wages, none of the 10 would dare demand a higher wages as they know whoever sticks one's neck out could be replaced even though if enough (3+) make the same demands, they may well get what they ask for.

Real world is of course a lot more complicated than this (collective bargains, kind employers, information asymmetry etc ), but that is the theory and probably have some effect on wage demands.

That makes perfect sense. Thank you topsy77.