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Home Publications The interplay among wages, technology and globalisation: the labour market and inequality, 1620–2020

The interplay among wages, technology and globalisation: the labour market and inequality, 1620–2020

Bob Allen
Report

The UK economy is not performing well. GDP is growing slowly. Labour productivity lags behind most of western Europe. Inequality is also rising, real wages have been growing less rapidly than output per worker, and labour’s share of the national income has dropped substantially. In addition, regional inequality has become extreme. Only London performs well in a European context, while most of the country has sunk to central European levels of income and performance. How has the country that pioneered the first Industrial Revolution come to such a pass?

This chapter addresses that question by tracing the history of wages, technology and globalisation over the past four centuries. Today is not the first time that inequality has increased and become a great social problem. The Industrial Revolution is another example. Other periods have witnessed more favourable outcomes.

For the last four centuries, technology and wage rates have evolved together. Over the long term, productivity has risen, and wages have increased. The interplay between technology and wages has not been smooth, however: periods when growth was ‘successful’ with wages and productivity rising together have alternated with periods in which that synchronisation has broken down, the average wage has fallen behind productivity, and the dispersion of wages among workers has increased. The first aim of this chapter is to block out these phases over the past four centuries. A second aim is then to explore how technology has affected the labour market, and how the labour market, in turn, has affected the evolution of technology.

Key findings

  • The history of the last four centuries in the UK and US divides into four phases. Output per worker grew in all of them. Real wages grew on average from 1620 to 1770 and from 1840 to the 1970s. During the Industrial Revolution (1770–1840) and the post-1970 Service Revolution, however, the average real wage was flat and wage inequality increased.
  • Rising real wages led to labour-saving technical change in Britain during the Industrial Revolution and to the invention of mass production in the US in the twentieth century.

  • Employment in manufacturing has collapsed in the US and UK since the 1960s as routinised jobs created by mass production technology have been replaced by robots and computerised systems. The employment declines have also been conditioned by a shift in demand from manufactures to services and by rising imports of manufactures from China and other countries as they have industrialised.

  • The lost production jobs in manufacturing offered high pay. Many of the new jobs in services require advanced education and training and pay well; many others require little training and pay badly. The result has been a shift of income from labour to capital and an increase in inequality.

  • Productivity and incomes in all UK regions were at the top of the West European league table until the 1970s when growth outside greater London stagnated. Now, most UK regions lie at the bottom of the West European table, along with the former East Germany.

  • The UK’s regional problem encompassing most of the country is really a national productivity failure.