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For Professional Clients and, in Switzerland, for Qualified Investors only. In Israel for Sophisticated Investors only.
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IDEAS AND KNOWLEDGE TO INSPIRE YOUR INVESTMENTS THINKING
25 July 2019

Mind the wage gap

The advent of steam power in the late 18th century British textile industry led to a surge in worker productivity and rising profitability for mill owners. What it didn’t lead to was an increase in median wages. Visiting Manchester, in the 1840s German social scientist Friedrich Engels noted the phenomenon. Why, he asked, were industrialists growing richer while the mass of wage earners were barely scraping by?

 

A century and a half later, as we head into our own digital version of Britain’s industrial revolution are we experiencing a similar ‘Engels’ pause’?

 

As with those British textile workers in the late 18th and early 19th century, people today are being asked to accommodate baffling changes brought about by rapid technological change. Where once it was about steam, coal and iron, nowadays it’s about data, artificial intelligence and robots.

 

Like those workers of yore, today’s toilers aren’t seeing much improvement on the return from their labour even as they have become more productive thanks to those advances in technology.

 

And, just like in the early days of that first industrial revolution, the owners of the means of production – think algorithms this time, rather than textile mills – are fast accruing an increasing share of the profits.

 

Certainly, if we look at data from the US the message is clear: wage growth has not kept up with increases in productivity over recent decades. The fruits of that increased productivity have also, by and large, accrued to just a small segment of higher earners and not to the wider population. It’s perhaps still too early to determine whether that’s solely because of technological change or whether other factors might be at play – but it does raise some interesting questions about historical precedents.

 

Shamik Dhar, chief economist, BNY Mellon Investment Management.

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