UK Household Income, Not Your Average AD Story
Last week’s ONS bulletin with the catchy title of “Measuring National Well-being, The Economy – International Comparisons” attracted some attention in the press, several papers picking up on the decline of UK real household income relative to other countries.
The ONS do have a hackneyed discussion of inflation in their bulletin, but I thought it was worth exploring. Using the usual ONS measure of “gross disposable income” for the household sector, there is a rather surprising statistic: nominal household income has grown at the same rate in the five years since 2008 as it did in the five years to 2008.
Gross disposable income is only one of many available measures of household income. The ONS bulletin mentioned above uses an OECD series for “Household Actual Disposable Income” but I think these two are roughly equivalent. (Maybe I am wrong; I could not find a current price series in the OECD database during a brief search, to compare. Comments welcome.)
This can be illustrated as follows:
If you look further back at the household income series, there is a break in the trend growth rate at 2001; household income grew at c.5% p.a. between 1993 and 2001 and has grown at only c.4% since then; Phil over at the World of Interest blog picked up my chart showing this.
This view of the data certainly doesn’t tell us a convenient AD story about 2008-2012, more a supply-side story. (The deflator which the ONS apply to produce “real” household income is almost identical to the CPI itself.) Looking at a narrower measure of income, wages and salary compensation, per my previous post on Scott Sumner’s “musical chairs” model of the business cycle, that does show an AD story; I’ll expand on this again in another post.