It’s another tale of woe, disposable income, that’s income after tax, for the average person, is falling – is there any good news?
It has happened before, but not very often.
Disposable income fell in 2011 – thanks to surging inflation, and it fell in 2008, which also saw rapidly rising food and energy costs – oil hit an all-time high, roughly three times the current level. It also happened in the 1970s and early 1980s, but episodes when disposable income falls are mercifully rare.
In Q1 of this year, disposable income fell by two per cent.
This time, we can’t really blame inflation. Sure, thanks to the post-Brexit falls in the pound, inflation rose to 2.9 per cent in May, and in April, real wages excluding bonuses fell by 0.6 per cent. But frankly, a 2.9 per cent inflation rate is not high. For most of the past 50 years it has been much higher, yet disposable income rose.
No, the real problem is that in Q1 output per hour worked fell by 0.5 per cent. Wages, and thus disposable income, are a function of how much is produced per unit of labour.
And it seems that the price we have paid for record low unemployment – which is currently at its joint lowest level since the mid-1970s – is lower wages, and indeed lower output.
This begs the question why?
Why, in age of such technology miracles, is productivity growth so low?
Robert Gordon, an economics professor at North Western University near Chicago says that technology innovation is not what it used to be, he blames lack of innovation.
For people who work in business, especially at the start-up stage, that just does not feel right – they cannot get their head around the idea of slowing innovation.
Another theory doing the rounds is that technology is creating a two-tiered system – there are your highly productive techs – they pay staff well, but the job count per unit of turnover is very low.
And because such a disproportionate amount of production is taken up by companies that have low staff counts, we get a glut of labour forcing down on wages.
Companies find they do not need to invest much, as labour is so cheap, hence we get low productivity, low wages and falling disposable income.
A partial solution lies with the long tail.
In the digital age, more and more niche markets are opening up – they can create jobs, and well-paid jobs at that.
Another solution lies with a move, en mass, towards new technologies such as AI and augmented reality, creating new jobs.
To grab the opportunity of the long tail we need a better educated workforce, and we need more entrepreneurs..
Entrepreneurs are not the sole solution, but they are part of it.
The UK is emerging an entrepreneurial success story – but more needs to be done, and one way to achieve this is to shine the media spotlight on entrepreneurs, their challenges, their failures and of course their successes.
The NatWestGreat British Entrepreneur Awards are currently open for applications, and entrants can apply here