One of the more annoying tropes of recent months is the claim that real wages have been cut by rising inflation.
This is not true. We had much higher inflation than we’ve had recently in the 1980s and yet real wages grew nicely then. So why is inflation now cutting real wages when it didn’t do so before?
The answer lies in one word – productivity. It is productivity that ultimately determines real wages. If we’re not producing more, we can’t earn more. And this has fallen over the past 10 years.