Most economists see stagnant productivity as a real problem. And in an ideal world we would all be migrating to extremely high value jobs with high pay and high productivity. But we had a bit of a false dawn with City jobs. The number of people working in City jobs rose from 204 thousand in 1993 to 332 thousand in 2008 while bonuses rose from £1.6 billion to  a peak of £12 billion. Our latest estimate of  bonuses in the City alone this year is under £2 billion though this does not include the clearing banks.The collapse in bonuses and hence costs has cushioned the City jobs from falling as much as the recent fall in City activity would have implied. But it can only be a matter of time  before employment in the City adjusts.

 

Even when it was at its peak, there was some question about whether the prosperity generated by the City was sustainable. Cebr had consistently advised Gordon Brown to treat the huge tax revenues generated as a windfall and not to set up spending programmes dependent on them. Unfortunately he ignored our advice and some of the problems of so-called austerity that the country is now facing stem from this failure. Both City salaries and jobs are now declining and we think there is a good chance that they may be about to face even more savage cuts than has been the case up till now. But is the country worse off? Much of the City prosperity was based on types of financial engineering that arguably did little for the economy, though the tax revenues generated could have been helpful had they not been frittered away.

 

While jobs in the City are declining, new jobs with lower salaries in the Flat White Economy are burgeoning. Although the London Flat White Economy may have temporarily paused for breath, it is booming in the UK outside London, as well as in Southern Europe – we drew attention to Spain last week. So people are still working – it’s just that they aren’t getting paid as much.

 

The UK has still got a highly flexible economy which adjusts to circumstances. What seems to be occurring is that people are successfully transitioning from one type of employment to another. Meanwhile, they are adjusting the way they live to be much more technology dependent and much less based on the consumption of ‘things’. They are sharing space and facilities. Coffee houses are now their front rooms, their offices, their meeting spaces and their kitchens. Their lack of housing space is limiting their possessions. Obviously this is especially a London phenomenon but it seems to be increasingly shared by young people elsewhere in the UK.

 

Standard measures of GDP are not great at capturing this type of phenomenon. First, the new businesses are not often caught in the statistical net because they are too new. Second, some of the measures are inaccurate. B2B software is particularly badly measured in its impact on the economy (see my book the Flat White Economy* for detail about why!). Third, the convenience and lifestyle bonuses from apps like Uber are missed out (indeed they may even be treated as a negative for GDP if the cost of the journey goes down). And productivity, which is the change in measured GDP per person, is affected by the same flaws. So perhaps we should be less worried about the measures which show a stagnant trend in productivity.

 

* https://www.amazon.co.uk/Flat-White-Economy-Digital-Transforming/dp/0715650653/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr=

 

Douglas McWilliams, President