3  All speeches are available online at www.bankofengland.co.uk/speeches  3  But such big transitions take time. Workers generally cannot move seamlessly to new jobs in which they can be productive. The benefits of the First Industrial Revolution, which began in the latter half of the 18  th  th 7  century, were not felt fully in productivity and wages until the second half of the 19 . th  Indeed, at the start of the 19 century in the UK, despite a sharp pickup in productivity, wage growth stalled and the labour share fell – a period dubbed “Engels’ pause”. A Framework for Examining Technical Change and the Labour Market 8  To understand such dynamics it helps to have a common conceptual framework. The impact of technological change on employment and wages can be depicted as the sum of three major effects: destruction, productivity and creation. The destruction effect is the focus of most alarmist accounts: the replacement of labour by technology, with an associated reduction in labour demand, wages and employment. Less commonly acknowledged are the positive effects on aggregate demand of new technologies, what can be termed the productivity effect. This effect is analogous to the classic Say’s law in which supply creates its own demand. Technology makes those in work more productive, in time boosting wages and increasing the returns to those who own capital. This greater income boosts aggregate demand and leans against the destruction effect.
The wave of consolidation has, however, created mega-exchanges in the U.S. and Europe, and competition among them has proceeded at a furious pace. The Chicago Board of Trade (CBOT) faces a serious challenge on its home turf from Eurex, the all-electronic exchange owned by Deutsche Börse and the Swiss Stock Exchange. Eurex is now offering electronic trading in U.S. dollar denominated fixed income futures which have been the mainstay of the CBOT. The pan-European exchange, Euronext.Liffe, is offering electronic trading in Eurodollar futures contracts in direct competition with the Chicago Mercantile Exchange (CME). CME has responded quickly, announcing initiatives to accelerate the migration of its flagship Eurodollar contract to GLOBEX, its electronic trading platform. And just this month, it was reported that the New York Stock Exchange may enter the derivatives market too. Hardly a week passes without press reports of strategic moves by the exchanges. Securities exchanges have not been spared from the competition. London Stock Exchange (LSE) will launch its Dutch Trading Service, euroSETS, in May this year. This will allow the most liquid stocks listed on Euronext-Amsterdam to be traded through LSE. This bold move is being watched closely by the industry, and may challenge conventional wisdom on the contestability of stock exchange liquidity. The outcome of these contests could significantly alter the competitive landscape for exchanges in the next few years. Key drivers of consolidation and competition One key driver behind the consolidation and competition is technology. Exchanges and clearing houses are very much technology businesses today.