Tuesday, 9 February 2016

Services going global may limit UK average earnings growth

Recent information from the Institute of Fiscal Studies suggests that the UK's current financial plan may not come in as forecast. It seems unlikely that this would surprise anybody.

However, digging into the figures there is a new pattern emerging which is causing a bit of general confusion among the pointy head economists and it goes something like this;

Normally as employment levels increase (as they have in the UK) this causes a shortage of labour which in turn drives its price up. These increased wages translate into greater tax revenues due to the progressive nature of income tax.

However this is not what has been happening. Average earnings are 7% under where the IFS expected them to be in 2016 which is a very big miss.

It seems possible that that the ability to get lots of projects done remotely via the internet by people based all over the world (often in a very low cost base) provides companies with an option they did not have before. There was a time, for example, when a logo design was a £2-3k investment whereas now numerous auction type websites will have good designers from all over the world competing to do the design for under £150. And the results are excellent.

This limits the options of the UK based graphic designers to argue for a bumper pay rise (or any pay rise) however good the client relationship. They do have the option to join the global pool online but work for a fraction of previous earnings.

Companies under pressure in the long shadow of the 2008 financial meltdown will find lots of ways to do more with less and it seems likely that accessing low cost skilled labour from a global pool via the internet will be one of them. Common sense suggests that countries like India where a monthly average wage is £200 will benefit whereas countries above the mean global average will suffer as the playing field levels off in a networked world.

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