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By David Robinson
     LONDON (MNI) - Hidden labour market slack persists in the U.K. even though
workers no longer complain of insufficient paid hours, helping to explain
continuing weakness in wage growth, former Bank of England Monetary Policy
Committee member David Blanchflower told MNI.
     While an imbalance between the number of hours employees want to work and
the number they actually work has disappeared since early 2018, Blanchflower
said the labour market was still not running as hot as prior to the financial
crisis, when workers overall sought more leisure time.
     "It is this that matters. There is a lot more slack. In equilibrium, more
people want fewer hours than more hours," he said in an interview.
     Blanchflower has long argued that central banks relied too much on
unemployment levels for determining expectations of wage growth. Critics have
responded that measures of underemployment have now eased, and some of his
suggestions have been taken on board by the Bank of England's current MPC, but
he insisted to MNI that labour market slack is still greater than officially
acknowledged.
     "Unemployment doesn't enter a wage equation any more. It doesn't, the
underemployment rate does," Blanchflower said.
     He pointed to the MPC's forecasts from early 2014 through to the end of
2018 which repeatedly over-estimated earnings growth, at times expecting it to
pick up to around 4%, close to its typical pre-crisis level. In the event, wages
grew by 2%-3%.
     "They kept saying it is 2% and it is going to be 4%. They got it wrong 22
times in a row. At some point that will happen ... Eventually a stopped clock is
going to be right," Blanchflower said.
     While UK earnings growth has now ticked higher, it will not get back to the
levels previously expected and there are already signs of growth tailing off, he
said.
     The MPC's productivity forecast has been "terrible", Blanchflower argued.
     "Why they keep doing it I have no idea, but that looks to be a big error
and the economy is growing much more slowly than people had thought," he said.
     In his view low productivity is a symptom of inequality in the workplace.
     "If there is an increase in profits and the managers are going to pay it to
themselves why should the workers help the managers?" Blanchflower said.
     The MPC's latest forecast in its May Inflation Report is, once again, for a
gradual increase in earnings growth. The four-quarter average weekly earnings
growth rate is seen at 3% in 2019, 3.5% in 2020 and 3.75% in 2021. The most
recent data showed growth of 3.1% in April, down from 3.3% in March.
     MPC member Gertjan Vlieghe, appearing at a National Institute of Economic
and Social Research event with Blanchflower, argued that current data do not
point to much labour market slack.
     "I have a lot of sympathy with the concept, as do many of my MPC
colleagues. Detailed analysis of underemployment is part of our regular
toolkit," Vlieghe said.
--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com
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