From the TUC

‘Dangerous fallacy’ a reality: ONS revisions show fall in living standards worse than previously thought

30 Sep 2014, by in Economics

In spite of upward revisions to the size of the economy, revised figures show a reduced share going to workers, and the fall in living standards worse than previously thought. Household income in 2013 is now estimated as down 2.7 per cent down on its peak in 2010, compared to the previous figures which showed a fall of 1.8 per cent.  

As widely anticipated, major changes to the National Accounts as a result of the ONS annual Blue Book (BB14) exercise show the economy is larger than previously estimated. The upwards revisions mean that gross domestic product (GDP) is now 2.7 per cent higher than the pre-crisis peak, compared to the previous estimate of 0.2 per cent. However, these gains have not benefitted households. The labour share, measured as compensation of employees as a share of GDP (in cash terms), is reduced fairly uniformly across the whole span of the data, with 2013 revised down to 51.2 per cent from the previous estimate of 53.7 per cent. The decline from the recent peak in 2009 to 2013 is sharper at -2.2 percentage points on the new figures, compared to -1.3 percentage points on the previous figures.

Compensation of employees, % of GDP

bb1

The most comprehensive measure of household incomes is real household disposable income per head, which adjusts the national accounts measure of disposable income for inflation and increases in the population. (HM Treasury have previously suggested in Autumn Statement 2013 para. 1.29 that RHHDI provides a ‘complete picture’ of living standards.) Annual figures are shown below.

Real household disposable income per capita, 2005=100

bb2

On the basis of the latest figures, household incomes in 2013 were little different to their level in 2005. Looking over time, incomes are now estimated as down 2.7 per cent down on the peak in 2010; previously the fall was 1.8 per cent on the peak in 2009.

(Note that on a quarterly basis, the figures rebound into 2014 Q2, but there seems to be a serious seasonal factor here, with the past four years showing a strong rise into Q2, related to bonus payment and tax changes. Annual figures are likely to provide a more stable guide to underlying trends.)

The Chancellor said yesterday that it was a “dangerous fallacy” to consider that the link between the prosperity of the national economy and the prosperity of working people might be broken. These official figures show that under the Coalition this break is a reality.

One Response to ‘Dangerous fallacy’ a reality: ONS revisions show fall in living standards worse than previously thought

  1. ONS Blue Book 2014: GDP revisions in context and changes to the corporate sector | ToUChstone blog: A public policy blog from the TUC
    Sep 30th 2014, 7:05 pm

    […] aside the changes to the household position, this post puts the revisions to headline GDP into an international context, examines the changes […]