The Link Between the Standard of Living and Productivity in the UK: A Decomposition

1 The author is a member of the Centre for Macroeconomics at the London School of Economics, and a Fellow of the National Institute of Economic and Social Research, London. [...] namely that it is remote from the incomes The aim of this article is to present a that ordinary people receive and it ignores decomposition of the growth of economic inequality: GDP per head is the arithmetic welfare which links it through a series mean of GDP but this can be rising even if of factors to the growth of productivity. [...] Much of the remainder of The starting point of the analysis for the gap between their measure of welfare the UK is the Office for National Statis- and GDP per capita is due to the choice tics’ (ONS) concept of “median equival- of deflator. [...] So each of the two adults is assigned an income of £39,000 which is 4.33 times the income of the person in the first household. [...] It may also reflect ( )( )( ) H G GDP changes in the terms of trade: the ≡ G N H price of consumption is influenced by the price of imports while the GDP where G is goals scored in the English deflator is influenced by the price of Premiership.