inflation; unemployment; labour productivity

There is a widespread belief that “labour is steadily losing out to capital”. This was, for example, the title of an article in The Economist last year (4 October). With the important exception of the US, the data show this to be a myth.

The ratio of labour incomes to gross domestic product is commonly used to justify the claim. This has several faults. First, the data do not support it, as there has not been a general decline in the labour share of GDP. Second, the fluctuations in the labour share of GDP are not matched by compensating changes in the profit share. Third, a serious look at the issue would use another approach and consider whether labour has lost out to capital in their share of corporate output. Read more

“When will the Bank of England raise interest rates?” is the usual question. “When should it?” is the important one. The bank has a long history of “acting too little and too late”. As I explained in inflation and deflation, inflation is more dangerous than deflation and prudent central bankers would rather act too soon to raise rates than be too late and then be forced to cause a recession to get inflationary expectations back under control.

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