Rising Wages in the UK amid Brexit Negotiations

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The UK wages have been rising this year and the residents themselves do not know what to make of this situation. Bonuses aside, the wages have grown by 2.9% as shown by the figures from the Office for National Statistics (ONS). The figure is well above the inflation rate. In fact, that has been the case for the last four months. The intriguing thing is that unemployment over that four month-period has fallen by 55,000 to around 1.36. It means that the jobless rate has remained at 4%, the lowest level for about four decades. It only keeps getting better because the number of people who have remained in work in the country remained unchanged at 32.4 million.

The case of the United Kingdom has been analyzed using the issues at hand in the country. In the case of the UK, it has been assumed that the high levels of employment mean that the demand for workers is high. When firms compete for labour, they have no option but to pay higher wages. The only problem is that incomes in this country have never recovered since the 2008-2009 financial crises. The good thing for the country is that the economic growth is stronger and backed with the possibility of a good Brexit deal, it spells good news for the economy in general. With higher wages, people could spend more. In the United Kingdom, consumer spending accounts for about two-thirds of what occurs in this economy.

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Since no one knows what will come out of the Brexit deal, it is always important to assume the worst case scenario. Economic behavior normally depends on what is currently happening and what is expected to happen in the future. With the increased uncertainty because no one knows what the UK’s relations with the EU will be after the deal. Due to such qualms, businesses would be unwilling to invest in new projects, particularly the risky ones. When this happens, the output growth is expected to fall. With the referendum, it means that the openness to trade in the UK will not be as before the deal. With such reduced incentives to invest by foreign firms, the output is expected to further go down.

One element that has massively been affected by the Brexit is the financial markets. The vote to leave led to a dramatic fall in the value of the pound which means that the costs of imports have risen. Due to this, inflation had to go above the growth of wages. With the referendum, the people of the UK could not argue that they were not expecting such huge changes. That is what happens when someone cuts ties with their biggest trading partner. At the moment, the inflation is not high, and with the wages doing well, the people feel that they are doing well than they had anticipated. However, there is one big problem that still remains unseen.

The rise in wages is hiding the actual situation of the labour market under this administration. People may feel that they are earning more but in reality, what they are making is less than what they did in 2008. Many people are stuck in insecure jobs that they do not want to do but they do not have an option but to do them because it is the only route out of poverty. It means that when jobs become available it does not necessarily mean that an economy is doing well. In the three month period between July and October, jobs increased by 14,000. That is an alarmingly high number of job opportunities and another indicator that the country suffers from persistent skills shortages. Firms indicate that despite the large number of people waiting to be employed, they are finding it difficult to obtain people with the right skills that they need. It has affected the country’s capacity to grow and increase productivity.

The figure above can be used in explaining the wage situation in the United Kingdom. The demand curve for labour indicates that as the demand for workers increase, the wages also increase. This is the case in the UK. One could argue that the rise in output in the UK has resulted to this demand in labour which in turn forces these firms to pay high wages at every level.

  • Halligan, Liam and Gerard Lyons. Clean Brexit: Why Leaving the EU Still Makes Sense – Building a Post-Brexit Economy for All. London: Biteback Publishing, 2018.
  • Pylas, Pan. “UK wages grow at fastest in a decade but Brexit casts shadow.” 16 October 2018. The Washington Times. 24 October 2018 .
  • Tragakes, Ellie. Economics for the IB Diploma. Cambridge: Cambridge University Press, 2012.
  • Whyman, Philip B. and Alina I. Petrescu. The Economics of Brexit: A Cost-Benefit Analysis of the UK’s Economic Relationship with the EU. Cham: Springer, 2017.

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