This long-awaited wage boom will transform the economy
So what impact will this have on the economy? Here are four trends to watch out for.
First of all, expect a consumer boom. When all of these salary increases start to hit people’s bank accounts, we should expect people to spend and spend and spend more. At the lower end of the income scale, people spend significantly more on any increase in their disposable income (in economics textbooks this is called a higher marginal propensity to consume).
Someone earning £ 25,000 can probably think of a bunch of things they would like to buy but couldn’t afford. Someone with £ 80,000? Less then. Rising wages will mean spending much faster than the same money for white collar workers, and all of that higher extra spending will boost retail, entertainment and travel very quickly.
Then expect to finally see a further increase in homeownership. Over the past decade, the percentage of people who owned their own homes has steadily declined, from a peak of 73% to just 63%. The people who struggled the most to climb the ownership ladder were not just the young (who, oddly enough, often age) but the semi-skilled blue-collar workers.
With stagnant wages and soaring house prices, it was increasingly difficult for them to put up a deposit and a mortgage of three or four times their income did not go very far. If real wages go up 30% and you quadruple that, suddenly there is a lot more money to play. Overall, homes will become more affordable, especially new construction across the country. Most of us want to own where we live – and if we can afford it, we’ll buy it.