Are our living standards beginning to rise yet? It is a contentious political issue, sharpened by last week's report from the Office for National Statistics (ONS) which suggested that, on all measures, earnings were rising more slowly than prices.
There is no doubt that real earnings fell sharply following the recession, but the conclusion that they are still falling has been challenged because the ONS may be under-measuring earnings. For example, it does not include the profits of small businesses, where owner-workers may choose not to draw income but leave the money in the business, and it may not be fully catching earnings from second jobs. On this wider measure, earnings have risen by more than 3 per cent over the past year, well above inflation, and in line with the growth in consumption.
The broader point here is that it is hard to measure things accurately at a time of rapid structural change. There has been a sharp change in working patterns, for example, with a surge in the number of people beyond retirement age doing some form of work, and the number of workers with a second job at a 12-year high. There has also – and I find this even more interesting – been an astounding change in the way the new technologies are altering not just our patterns of spending but the way we organise our lives. As a result, our living standards are rising in ways which do not show up fully in the statistics.
Take these three examples. One of the most dramatic changes to education worldwide has been the growth of Moocs – Massive Open Online Courses at universities around the world. You can register for Harvard, with no fee, at the click of a mouse. This form of higher education does not, of course, replicate what you would get from a Harvard degree, but you have some access to the knowledge base of what, on most tallies, is the best university in the world.
There is currently a great global debate as to how Moocs will change education. Enthusiasts, who include Education Secretary Michael Gove, have suggested that they be used in schools to broaden the curriculum. Critics note that students tend to browse what is on offer rather than discipline themselves to finish courses. What is beyond dispute is that there is a huge unsatisfied global thirst for knowledge and Moocs are one way of quenching it.
We cannot know their long-term impact on the world economy because they are so new, though they must be some sort of plus. But we cannot even measure their current impact. Because they are free to the user they don't show up in living standards or Gross Domestic Product – or rather only the modest cost of setting them up appears in GDP. They are simply, in the stats, an additional marketing expense.
Example two is the surge in apps. A free app will appear initially in the stats because it will have cost money to develop, but if it is up and out there being used it will barely register. Yet every time we use an app, maybe something as simple as working out what mix of public transport to use to cross London, we improve our quality of life – and that is not caught at all in the GDP numbers.
The point here is that in the past rises in living standards have come from spending more on stuff (a better car, or more clothes) or from more services, sometimes paid through taxes (better health care), sometimes directly (a meal at a restaurant). Now they are increasingly coming from things that make our lives more interesting or easier – and these do not necessarily cost money to buy.
That leads to example three, which is on the earning side of economic activity rather than the spending side. The new technologies are radically changing our work patterns. Perhaps the most dramatic example is the rise of teleworking. Universal broadband and the growing cost of office space has led to increasing numbers of people working from home, with between 10 and 12 per cent of the UK workforce now a teleworker – someone who either works entirely from home or from a variety of places using home as a base.
If someone shifts from working in the office to working from home that may appear as a decrease in GDP. The employer is spending less on office space and the worker forks out less on commuting. Yet, assuming that both the quantity and quality of the work is maintained, there is an increase in that person's real standard of living.
Some want to take this argument a stage further and say that GDP per head is not a good measure of the standard of living, let alone quality of life. The retort to that is that it is certainly an imperfect one but it is the least bad one that we have.
My point is narrower. It is that at a time of very rapid structural change in the economy, partly driven by technology, partly forced by the need to adapt to a severe recession, you have to be careful about assessing what is happening to real incomes. My guess – it is no more than that – is that living standards have already started to rise again, but we will not know for a long time whether this is right or not.