Pay and Prices

A free market capitalist economy always seeks to drive the price of labour down and the price of goods and services up.

The basic job of unions is to keep the price of labour high.

This job hasn’t been done very well particularly in the public sector where key leaders ran a mile from the momentum created in the pensions dispute. This led employers everywhere to continue the offensive on pay and pensions.

Now there is gnashing of teeth that public sector pay is worth about 20 per cent less than it was four years ago and 500,000 public sector workers earn less than the living wage.

In the rubble of collective bargaining structures unions may or may not break the ideological acceptance that somehow being low paid prevents unemployment and actually begin to fight for pay again. Every economist know when pay lags behind prices the economy goes into recession – even the governor of the Bank of England has an inkling of this. Because they have another trick up their sleeve and he controls it. If and when pay levels rise in comparison with inflation of other prices he will raise interest rates and our hard fought for pay rises will end up back in the bankers pockets as they put mortgages up.

But there could be a nasty shock in 2014 as the finance markets remain volatile and by and large as they were before the last crash. Many of the most powerful financiers relish more money market chaos because, as in 2008, it is then when they can make really big quick bucks.

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