About The Economy? (FALC)

[pete]

OK So I was listening to the Today program this morning, as you do (way too old for R1 these days). Falling asleep after my night shift listening to Lamont being interviewed about inflation.

And he says (and I'm paraphrasing here) that although inflation was 3-4% workers had to accept that they would not be getting pay rises (of this level) and indeed to ask for them would be reckless etc as they would "lock in inflation". He was saying this after they had just interviewed a TU leader who was taking the other view, shall we say.

So when does he expect workers to ask for a pay rise? I'm not trying to start a fight here, I really just don't understand. He can't possibly be predicting a period of deflation - even I know how bad that would be for the economy.
So is he saying that the workers should just accept an ongoing pay cut (pay freeze of 3 years with inflation sitting at 3.5%, say, would equate to a greater than 10% pay cut) in orderot bail out the economy. And as HMG fails to keep inflation under control (that VAT increase won't help) the pay cut will get worse, in real terms.

Just wondering if there is someone out there willing to explain it to me what I'm missing...

[BiggestNizzy]

2 weeks ago I got my first pay rise in 5 years

a nice 5% and this is in line with the rest of the industry in the area.

I think everyone would love a yearly pay rise in line with inflation but that is unrelistic.

[Ferg]

Generally I would have thought that a good time is when you've been working hard and showing high productivity whilst maintaining quality. If the health of the company permits it, they may well reward you. The company an employee works for also has increased costs etc as a result of the economic lanscape so in tighter times there maybe less room for pay rises.

just a few thoughts not a considered position....

[pete]

2 weeks ago I got my first pay rise in 5 years

a nice 5% and this is in line with the rest of the industry in the area.

I think everyone would love a yearly pay rise in line with inflation but that is unrelistic.

But I don't think anyone has been getting (RPI) pay rises, Suzy hasn't had one for years, I get them but the cost of living element is below RPI.

(Note that my conclusion is reached from my extensive, selective, survey of three.)

[robin]

For the foreseeable future, labour will be on the back foot with little or no room to apply economic pressure to their employers; if the number of open jobs rises, this might change, but given ~2m unemployed that's not likely to happen soon. It is just the way the world works. Automatic cost of living rises are something that some people have grown to expect, but I see no direct reason why they should be awarded; the cost of living is not generally related to the ability of the employers to pay, especially not when inflation is high due to the cost of imports/falling currency. If you don't like it, you need to run your own business and live or die by its success or failure ...

Cheers,
Robin

[kenny]

For the last 3 years I have had a 25% pay cut in my salary, add that to what we used to earn in overtime and I am down quite a lot of money. The 25% pay cut is voluntary but in reality we had two choices.
a) accept it
b) bugger off somewhere else

And seeing as it's not just my company it's industry wide, Architects, M&E engineers, contractors all making similar cuts and laying similar numbers of staff option b is not an option. So the less deluded out there will understand when I have little sympathy for trade unionists, who think that there is some infinite pot of money to dish out and choose to ignore the UK's £1trillion deficit, whining about their 2% increase.

It's not publics fault that we are in this state, it's not fair that we are being hit hard but that's it. Sh!t happens. If we go down the bury our heads in the sand route and try to spend our way out of this, (spend even more money we dont have) we will end up in a similar state, or worse, as Greece and Ireland.

[campbell]

We need to reduce waste and improve productivity.

And indeed, more of us perhaps need to take some entrepreneurial risk and make our mark on genuine economic growth but that's a big ask. And we can't all be Chiefs, after all!

A national economy often strikes me as a "closed system", other than import/export effects. Do we simply have to try to export more, then? Which nations still have money to buy them, though, and are we able to produce the exports they want? It's not like many places will want to buy our banking products

Or do we just try to import less? British car, anyone...

[PhilA]

supposidly if wages go up, so inflation goes up more, and so interest rates would likely go up, and spiral - kinda like it did way back when interest rates went to stupid%.

pay freeze currently at work.
also had an effective 20% wage reduction as overtime cancelled.
still expected to do overtime for nought.

i want to start a business, and start making money. aint found a way forward with that.

hey ho, studying .NET 4 for exams, hopefully that will lead to something.

[pete]

Hmm.

Thanks for the replies although none offered the "Oh right" I was hoping for...

So the conclusion seems to be that the labour market is being forced to take a pay cut (doesn't really matter if you are public or private sector in many respects, I'm private sector for the record though) with the idea this will reduce the deficit?

But the rational is not that the labour market is overpaid, in many cases it won't be, there will be exceptional cases (top of the banking sector) where it clearly is but these are not being addressed. The rational is simply that we are saving money. But this affects growth, it might affect inflation by reducing supply.

Really doesn't seem like it will work but hey...

Off to think about it some more (I'm not trying to solve economics (I worried that last statement sounded vain), just understand how the hell they think this will work as to me it seems to be a complete anathema to cut things to this extent.,)

[campbell]

I'm with you Pete, can't really get my simple head round where it's all headed. Sorry we can't provide the "Oh right" answer quite yet!

However some things I do know. Keep our outgoings just a shade less than our incomings, find and review as many relevant facts as we can before making decisions, be prepared to envision the Worst Case Scenario and understand what living with that would be like, borrow money only against positive purposes or assets which we'd be happy to surrender to cancel the debt, don't assume the world owes us a living, remember that people matter more than money...and all will be well

[Noops]

Here's one for you clever people in the fiscal know. The Central Bank or Bank of England is pumping BILLIONS into the econamy called quantitive easing????forgive my spelling my labtop has slowed to a snail's pace.....

And the government is taking billions out called stealing or taxing. certain german gent with a very short moustash many years ago tried to flood the UK with billions to wreck the econamy.....

I'm slightly confused as to the differance or benifit....................

[campbell]

Is QE still underway?

You could say that if the Govt is pumping it in (via the BoE) then they're entitled to pump it back out after it's circulated a bit...by way of taxation

A bit like a sludge flush for a central heating system...if you leave that in too long it starts to corrupt, sorry corrode, the pipes

[pete]

Here's one for you clever people in the fiscal know. The Central Bank or Bank of England is pumping BILLIONS into the econamy called quantitive easing????forgive my spelling my labtop has slowed to a snail's pace.....

And the government is taking billions out called stealing or taxing. certain german gent with a very short moustash many years ago tried to flood the UK with billions to wreck the econamy.....

I'm slightly confused as to the differance or benifit....................

This explains that bit awesomely...

http://www.slate.com/id/1937/

[pete]

I'm with you Pete, can't really get my simple head round where it's all headed. Sorry we can't provide the "Oh right" answer quite yet!

remember that people matter more than money

i fear I have misunderstood this bit but it looks like the core of the current Westminster administration thinking has the exact opposite of this at heart. They are borrowing not against assets anymore but against people. By forcing wages lower they are either forcing us into big pay rises down the line (boom and bust) or condemning a generation to have wages below what they should be earning.
That's what i was trying to get at, in what I was saying above. That people are not being put first, the tone of the speech was quite clear - there will be pain and the labour market will be our relief valve.
To me that sounds skewed.

Oh well enough talking bollocks I have other things to do.,

[robin]

The private sector will always use supply and demand to set labour rates - more people chasing fewer jobs = lower salaries. This is perhaps a change from the "job for life" era, where companies would have different attitude to their staff. Within that model there will always be good employers and bad ones. Good ones are those that value the accumulated skills and loyalty in their experienced staff, and try to nurture new staff to have the right skills and attitudes. They will define the upper end of the salary range for a given job. The bad employers are ones that treat the labour market as a meat market. They will define the lower end of the salary range for the same job.

So I'm not sure that the government or BoE are really responsible for private sector pay, other than indirectly by allowing us to get into this mess in the first place?

Cheers,
Robin