Weak growth, falling real wages and poor productivity are linked, and one way to force business to invest and improve efficiency may be to lift wages across the economy.

Are you unhappy with the rising cost of living? If so, it’s not surprising. Ditto if you’re not happy with the state of the economy. The plain fact is that the economy is in the doldrums.

Although almost everyone who wants a job has got one and unemployment remains low compared with recent decades, nothing else in the economy is looking healthy. Growth has been weak, especially once you take account of the growing population.

People’s preoccupation with the cost of living is easily explained: wages haven’t been keeping up with rising prices. “Real” wages have fallen by 5 per cent since March 2021.

Investment by businesses in new plant and equipment is weak.

Productivity improvement – where greater efficiency allows the economy’s output of goods and services to grow faster than its inputs of labour and capital – isn’t happening. This matters because it is productivity improvement that makes the economy grow and raises our material standard of living.

So what can we do to get the economy growing again, with wages rising in real terms?

The conventional answer is to do whatever’s needed to improve productivity. This will allow wages to grow faster than prices without adding to inflation. Cost of living worries recede and our standard of living gets better.

Trouble is, control over........

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