You should be very careful what you wish for


An interesting little observation from Ed Lazear:

There are basically two ways that the average economywide wage can fall. There might be a shift in employment away from high-paying to lower-paying industries; in other words, the economy is producing more “bad jobs.” The other way is that the overall composition of work might be the same, but wages for the typical job in most sectors have fallen.

Normally, economywide wage changes reflect what happens to the wage of the typical job. But between 2010 and 2014 there were also significant declines in the proportion of the workforce employed in two high-paying industries. Those declines contributed to overall wage declines—and they may have been caused by policy mistakes.

The share of the private workforce employed in the BLS-defined industries “financial activities” and “hospitals” decreased by about 5% between 2010 and 2014. Jobs in these industries pay 29% and 24%, respectively, above the economy mean. Because a smaller share of labor is working those high-wage industries, the typical job in the economy is now lower-paying than in 2010.

What has been happening here in the UK?

Well, our highest paying industry by a long way is wholesale finance, The City. And for several years that industry was shrinking. And average wages were declining. The City is now expanding again and average wages are rising. It would not do to insist that all of both the rise and fall depends upon the hiring practices of The City. But certainly some of it does.

Which leaves us in a state of some amusement. For of course it is those who have been whingeing most about the domination of the financial markets who have been complaining loudest about the fall in wages. Be careful what you wish for for you might well get it.