Main Edition
US
FR
December 3, 2019 - 8:24am
Richard Jones is the physics professor whose paper on transforming the UK economy got the thumbs-up from Dominic Cummings last week.
I wrote a piece about his arguments on Monday, but there was something else in the paper that I didn’t have room for. It’s about the crucial relationship between productivity and wages.
Jones begins with the uncontroversial observation that “the growth of real wages tracks overall productivity growth.” This stands to reason, as the more productive that workers are the more they can command in the market place for their time. It’s surely no coincidence that in a decade of very low productivity growth we’ve also seen wages stagnate.
So to get wages growing again we need to boost productivity. But, wait! There’s a complication:
What might explain this pattern? In a word: options. If it’s just one market leading company dominating all the progress in a particular industry, then it won’t have to compete as hard for workers. If alternative employers are falling behind, then the employees at the dominant company are less likely to jump ship. As for cities, if the local economy as a whole is flourishing, then that means lots of choice for the resident labour force — and naturally they’ll go where the best prospects are.
So two lessons:
Firstly, market concentration (i.e. the growing dominance of a leading firm) is not good for wages — and therefore worth bearing in mind when it comes to competition policy, the regulation of platform capitalism and assessing the side-effects of ultra-low interest rates.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
Subscribe