Tuesday, April 9, 2013

The real legacy of Mrs. Thatcher

Nicholas Crafts has published what is probably the mainstream view of Mrs. Thatcher economic legacy. For him higher Total Factor Productivity (TFP) and a lower NAIRU (natural rate of unemployment) are the results of her policies. I have discussed in other posts the problems with both concepts, so I won't delve into that right now (also not much time to deal with anything now). I just want to point out her legacy in terms of what Crafts calls 'ending the Trade Union veto.'
Graph above shows the fall in unionization rates and the share of wages in total income. The former fell around 10%, from around 50% of the labor force to below 40%, while the latter fell 5% or so. Higher unemployment, no negotiation with unions, lower taxes for the wealthy (marginal income tax rates) and higher for the poor (higher Value Added Tax, VAT), all combined to bring labor into line (end its veto power). That's her legacy. The rest is confusion, or worse just concealing the truth.

PS: A more critical perspective from Krugman here.

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