For my family, it was real. For many communities and regions it was a blight, social every bit as much as economic. Across the country, it depressed the everyday lives of millions of adults, some of whose sons and daughters I knew as friends. And it was a blight that affected not one generation, but many. It was that experience as a teenager that led me to commit to economics, and to public service, as a way to understand, and perhaps try and correct, that economic and social blight. And more than thirty years on, those are the same reasons I remain committed to better understanding, and perhaps hoping to improve a fraction, the functioning of the economy to this day. Those wrenching developments in the UK labour market in the early 1980s have been repeated throughout history, since at least the Industrial Revolution. The cycles and shifts in  BIS central bankers’ speeches  1  jobs and wages, and attempts to moderate them, are as old as civilisation itself. Today’s cycles and shifts in the labour market are, in some respects, an echo of that past. As in the past, technology is changing the quantum and nature of work, displacing some jobs while creating others. As I will discuss, through each of the Industrial Revolutions innovation has disrupted the number and nature of jobs. Often, it has led to a so-called “hollowing out” of mid-skilled workers and a widening wage gap across the economy. Yet, in other respects, this time may be different.
This pattern is embodied in the MPC’s forecasts, with wages projected to outpace productivity in the next few years (Chart 31). Put differently, growth in unit wage costs is expected to pick up and the labour share to rise fairly sharply (Chart 32). That path is certainly plausible if cyclical factors are the key drivers of the low labour share. But there may be alternative forces at play. If substitutability between labour and capital is higher than in the past, labour’s bargaining power and share of income might be commensurably lower, as we have seen across a number of countries before and after the crisis. So how different might the MPC’s projections look if the labour share was, say, flat rather than rising over the next few years? Charts 32 and 33 show the path of wage growth and inflation that would imply. Wage growth is weaker, averaging around 3¼% rather than 4½% at the year three point. So too is consumption given weaker take-home pay, though this is largely offset by stronger company profits and higher investment, leaving aggregate output little altered. The upshot is a materially lower path for inflation than contained in November’s Inflation Report: inflation reaches around 1.6% at the two-year horizon and remains around these  12  BIS central bankers’ speeches  levels. That would put the balance of risks squarely towards a more protracted undershoot of the inflation target, even without any downdraught from external prices and demand.