tag:blogger.com,1999:blog-2546602206734889307.post7567265374823460714..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Why Brexit has led to falling real wagesMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-2546602206734889307.post-62508295145660938972017-09-11T06:59:10.720+00:002017-09-11T06:59:10.720+00:00A good observation. This idea that the answer is t...A good observation. This idea that the answer is to devalue currencies is very MIT-centred -which has a close relationship the IMF. Dornbusch and others used to say (using Model) that East Asian economies kept their currencies 'undervalued' and maintained large surpluses. But historians will tell you that their currencies were 'overvalued', evidenced in low black market rates. <br /><br />NK.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-29405976113929469602017-09-04T21:04:02.617+00:002017-09-04T21:04:02.617+00:00Were real wages not falling long before Brexit? An...Were real wages not falling long before Brexit? And, as you say, Brexit hasn't happened yet? Does this imply you believe in a strong version of the efficient market theory? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-75990735587785219312017-09-04T18:53:54.242+00:002017-09-04T18:53:54.242+00:00From my own experience I would suggest short term ...From my own experience I would suggest short term incentives as the reason. When people are rewarded for quarterly performance, taking margin today rather than share tomorrow is too tempting,Stampshttps://www.blogger.com/profile/09241335224421242618noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-57846054378499009582017-09-02T23:32:25.529+00:002017-09-02T23:32:25.529+00:00Higher profits typically induce more production/in...Higher profits typically induce more production/investment, which often requires more labour and in turn higher wages to entice them. That said, there are lots of caveats to this story (market power, not full employment, etc)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-54880320970806372272017-09-02T23:24:24.549+00:002017-09-02T23:24:24.549+00:00If prices are set in the foreign currency, a weake...If prices are set in the foreign currency, a weaker pound boosts sterling revenues. You don't need to lower prices and increase market share to grow profits.<br /><br />S Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-67189858913091952972017-09-02T09:06:09.850+00:002017-09-02T09:06:09.850+00:00I wonder whether part of the problem is that firms...I wonder whether part of the problem is that firms are anxious to hoard as much profit as possible in order to validate elevated stock market valuations (elevated as a consequence of QE) AND to offset pension fund deficits (which are suffering from the want of compounding attributable to very low interest rates); indeed, the demand for elevated stock valuations is also part of the pension problem: fund managers must have increasing returns via stocks in lieu of the compounding that they would have obtained had interest rates remained positive. If firms were not hamstrung by unaffordable promises to past pensioners there would be less of a need to fixate on hoarding profits. What current and future workers - defined benefit pensioners - must realise is that their wages are stagnating or falling in real terms (and their opportunities are shrivelling in consequence) as a function of the need to keep their predecessors in their defined benefit entitlements.<br /><br />The only consolation for workers re Brexit is that, over time, it might create such a scarcity of labour in certain sectors that it will force firms to increase real wages and/or invest in long-overdue productivity improvements. <br /><br />As to the failure of import substitution, this seems to underscore to me that need for a state-funded investment bank, as recommended by John McDonnell and others. If I recall, the likes of Godley, Cripps, etc. in the old Cambridge AE group were looking seriously at import substitution in the early 1980s.<br /><br />I agree with all the comments made about the insufficiency of retraining and the need for the state to concentrate carefully on labour market dynamics. Frogholehttps://www.blogger.com/profile/17017833849456366817noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-35842276925555241762017-09-02T00:01:28.560+00:002017-09-02T00:01:28.560+00:00It is refreshing to read this. Most mainstream eco...It is refreshing to read this. Most mainstream economists do not talk about terms of trade effects (eg Krugman and many others saying ad nauseum that the answers to problems like those in Greece would be simply solved if it could just devalue its own currency). An important discussion about the substitutability of imports (Marshall-Lerner). I think if people can now start thinking seriously about this they would understand better why many countries, despite enormous hardships, prefer staying in the Eurozone. <br /><br />NK.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-22115217741188207302017-09-01T15:02:55.679+00:002017-09-01T15:02:55.679+00:00A few points come to my mind.
1 if local (e.g.€) ... A few points come to my mind.<br /><br />1 if local (e.g.€) prices have not been cut then surely export values (in £) will be rising if volumes are the same. If £ export values aren't going up to match depreciation someone is losing market share.<br /><br />2 due to the multi national integrated nature of so much business then a lot of exports will be set using transfer prices, and the importing company will not want to upset their finely balanced tax calculations by introducing currency risk in to higher taxed jurisdictions. Certainly no short term transfer price changes would be considered.<br /><br />3 like few other commenters I think the link between profit and wages may not be straight forward. A single company, family owned firm may be transparent enough for profit rises to be identified nad passed on eventually but in multi-nationals no single division or plant is going to identify its profits.Jonhttps://www.blogger.com/profile/11782647682118110023noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-2910121916194680492017-09-01T12:01:00.993+00:002017-09-01T12:01:00.993+00:00The clearest indication of the poor health of the ...The clearest indication of the poor health of the UK economy is that it is failing to respond to the widespread strength in the rest of Europe this year. <br /><br />GDP growth is surprising on the upside not only in the euro area, but in all economies around it with strong economic links - from Sweden, to Poland, to Turkey. But there is no such surprise in the UK, which is entirely consistent with your point. Stronger demand in the UK's main export market, a sterling depreciation and no noticeable economic boost!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-20732416734765258712017-09-01T07:40:15.525+00:002017-09-01T07:40:15.525+00:00This pretty much accords with my experience. There...This pretty much accords with my experience. There is an extra factor - suppliers who would previously have accepted £ are now demanding € or $, and using the necessary adjustment to nudge prices up at the same time.Glyn Hugheshttps://www.blogger.com/profile/06224531709045026905noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-19664355261917791452017-08-31T21:35:50.164+00:002017-08-31T21:35:50.164+00:00No need to publish this - mainly comments/suggesti...No need to publish this - mainly comments/suggestions regarding language.<br /><br />1st para, second sentence - "Euros" - change to euros; "a £" - sterling; change first "which" to "that", and put a comma before last "which".<br /><br />3rd para, second sentence - "Yet at the moment UK"<br /><br />5th para - comma after "In these circumstances"<br /><br />6th para, 3rd sentence - comma after "To some extent"; last sentence - comma after "Furthermore"<br /><br />7th para - "Single market" - all lowercase<br /><br />Wages have fallen in real terms since the referendum, but many employees have not seen real terms increases for many years before that. I think the economy is failing millions of people - there are too many jobs that are insecure (gig economy, zero hours), and many people are desperate for more hours (underemployment), or better pay and conditions and a career with progression. Many companies do not want to spend money training people. Perhaps worst of all, government is clueless about upskilling and training people (jobcentres are decades out of of date and these days are only there to process so-called 'benefits'). We need a government that is dynamic and can set up institutions and pathways that enable people to retrain quickly, but be flexible and smart enough to work with various industries to identify new jobs/roles and make training available to prepare people for entry-level roles.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-36803804180575084532017-08-31T19:49:32.146+00:002017-08-31T19:49:32.146+00:00The ONS Paper (Michael Hardie, Andrew Jowett, Tim ...The ONS Paper (Michael Hardie, Andrew Jowett, Tim Marshall & Philip Wales) covers some of this in relation to the exchange rate decline between Q3 2007 and Q1 2009.<br /><br />Search for: <br /><br />Explanation beyond exchange rates: trends in UK trade since 2007 (22 August 2013)Alexander Harveynoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-51474366407209635402017-08-31T18:10:23.138+00:002017-08-31T18:10:23.138+00:00Interesting argument as ever, however I feel like ...Interesting argument as ever, however I feel like this may attribute too much foresight and rationality to businesses. From my own experience of working in a multinational manufacturer, the idea that management would link higher profits to higher pay is simply unthinkable. I do not believe that the link between higher profits and higher wages exists anymore, certainly in big manufacturing. Higher profits mean higher profits, and nothing else.Stampshttps://www.blogger.com/profile/09241335224421242618noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-19103739460940261362017-08-31T13:49:04.383+00:002017-08-31T13:49:04.383+00:00Thanks for the technical update. As a layman I hav...Thanks for the technical update. As a layman I have never been happy with the idea that a sterling depreciation will fix all our problems. Its always felt like a first order reaction to a more complex issue.<br />Surely what is more important than the value of sterling is that we as a nation add value to our products and services so that they are sought after and traded.<br />This adding value requires a highly skilled and educated and active population.<br />Unfortunately as children we are taught the value of money and so obsess over it.<br />Maybe I am missing something obvious but I believe sterling's value is not that important and definatly not worth shooting yourself in the foot to cause it to depreciate. There is no easy answer just hard work.<br />MPC.Mpchttps://www.blogger.com/profile/16392075307395207908noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-20642984558385797882017-08-31T11:37:16.042+00:002017-08-31T11:37:16.042+00:00"Yet at the moment UK the majority of exporte..."Yet at the moment UK the majority of exporters seem to be responding to the depreciation not by cutting prices but by taking extra profits. If they keep their prices constant in overseas currency terms (from currency denomination data almost as many exports are priced in overseas currency as imports), sales will stay the same but profits in sterling will rise."<br /><br />Apologies, Simon, I'm not sure I follow why this would be the case. Isn't the logic behind the ↓currency value, ↓price of exports in foreign currencies that by cutting the price of your exports, you capture more of the market, increasing profit? If so, I think we need more explanation for why British firms are choosing not to drop the price of exports than 'they want increased profit', since that motive ought to see them at least fractionally reduce prices to capture a larger share of foreign markets.Anonymoushttps://www.blogger.com/profile/10494954574584013101noreply@blogger.com