If there is a “lump of labour” to be allocated across a fixed pool of jobs, technology will raise unemployment, other things equal. This being the real world, other things are of course never equal. As cheaper capital displaces labour, goods and services become cheaper, raising real incomes across the economy. That boosts the demand for new goods and services and new industries to supply them. To complete the loop, displaced labour then switches to meet this new demand, lowering unemployment. These are the income or compensation effects of technological progress. They are what make the “lump of labour” a fallacy. Which of these two effects – displacement or compensation – wins out? Ultimately, this is an empirical question and we have several hundreds of years of empirical evidence as a testbed. Perhaps unusually, these historical data tell a remarkably consistent story. •  Since 1750, there has been a steady and continuous stream of labour-saving technologies which have boosted economy-wide productivity, as measured by output per unit of labour inputs (Chart 9). On average since 1750, growth in UK labour productivity has been around 1.1% per year. That means the productivity of our economies has improved by around a third each generation, a massive leap forward. •  This improvement in labour productivity has not, over the medium term, caused any reduction in employment. In the UK, the employment rate today as a proportion of the total population is around 50%, very similar to levels in the early 19th century (Chart 10).
That is its lowest rate in a decade (Chart 3). 2  BIS central bankers’ speeches  •  These improvements in the labour market have also been reasonably well dispersed across the UK. Unemployment has fallen in every UK region since 2012, by at least 2 percentage points. •  Last, but by no means least, aggregate pay across the economy has begun to rise. A year ago, Mark Carney told the TUC that “Britain deserved a pay rise”. Today, I am delighted to say it has had one. Aggregate pay across the whole economy is growing at around 3% year-on-year, compared to less than 1% a year ago. •  In inflation-adjusted terms, the picture is even more heartening. Real pay is rising at over 3% year-on-year. A year ago, it was falling by around 0.4% (Chart 4). Real wages are rising at their highest rate for 8 years and, encouragingly, some of the fastest rates of real wage growth have been among the lowest paid. These developments have in large measure been driven by the recovery in the UK economy over the past few years. But let me now add some cross-currents to this fast-flowing employment stream. Many of these cross-currents will be familiar to the TUC’s membership. They pose some real challenges, economically and societally. •  Rates of unemployment still remain high among some cohorts and in some regions. Unemployment rates among those aged 18–24 is still over 13%, 8 percentage points above the national average.