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The shrinking pie

The most obvious reason for my surprise is that labour productivity has fallen. Total hours worked in the three months ending in February were 1.4 per cent up on the previous three months whereas GDP grew only 0.5 per cent, according to NIESR, implying that productivity fell by 0.9 per cent. If workers are producing less, we'd expect them to earn less.

But they are also producing less for their employers. Lower real wages don't mean higher profits. Real wages are falling not because companies are taking a bigger share of the pie, but because the pie is shrinking.

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