Be careful of conflating pay and living conditions

While making a case - which we’re not commenting upon right here and right now - against raising national insurance this point is made:

Nor have most people enjoyed a long period of steadily improving living standards, of the kind that might make them more inclined to be generous. Real pay, immediately prior to the pandemic, was still below the peak it reached under the last Labour government. Conservative-led governments delivered a lost decade for earnings, especially for the young.

The is both a logical and empirical error. Real pay and living standards are not the same thing. We may indeed say that they should be, for what we hope to measure and discuss as real pay is those living standards of those who gain that pay. But that’s not how it actually works out.

Real pay is derived from adjusting nominal pay by the inflation rate. This rather leaves out much of the effect of technological advance.

Assume, for the moment, that the peak in nominal, and by this calculation real, pay was in 2007, before the Grand Crash. That also the year of introduction of the iPhone, the first mass market smartphone. Even if nominal pay, or real as adjusted by the general inflation rate, has remained static does anyone really believe that a world with more smartphones (in the UK at least) than people now as opposed to none then has had static living standards? Or broadband, which has risen in average speed from some 2 Mbits to 90 or so. Streaming was hardly even a thing back then, nor was mobile internet. Facebook only went to general availability in 2006. So too did Twitter launch that year - for all that second may or may not be an addition to living standards.

The idea that living standards have been static since 2007 is absurd.

As to why, inflation calculations deal badly with new tech. Those two social media sites, being free, aren’t included at all nor are they in GDP. But inflation is calculated from the consumer basket - things that lots of people do in proportion. Which, by definition, doesn’t include things that no one does, nor what few people do as a new technology starts out. Only when many people are doing it does it enter the basket and become part of inflation. But that’s also after the first mass reduction in price which accompanies the change from rich man’s toy to mass acceptance which is the path of all new techs.

It’s simply innate to inflation calculations that they don’t deal well with new tech.

One set of estimates- probably the best we’ve got - says that WhatsApp is worth $600 a month to users, Facebook $50 and Search engines and free email (so, Google) $18,000 a year.

Or, as we might put it, the reason that real pay isn’t reflecting the rise in living standards these past two decades is because we don’t measure the rise in real pay properly. After all, it is supposed to be how much do we get for an hour of our labour? If that’s rising then so is real pay.