Economic changes prove a mixed bag for islanders

YOU may well have missed it.

But in 2012, the contribution of wages to economic growth fell below 50% for the first time.

Over the last decade of available GDP figures – 2005 to 2015 – wages contribution has fallen from 58% to 48%, while the other main component, profit, has shot up from 28% to 45%.

It looks even more stark in numerical terms – in 2005, profits contributed £535,734 to GDP and wages £1,102,799 and there has been a clear convergence since – in 2015, these figures were £1,052,627 and £1,131,699 respectively.

It is not hard to imagine in the next five years the contribution from profits outstripping wages.

Should we care?

As far as everyday life goes, spending power has been pretty much muted since 2010, when inflation outstripped wage growth – although for December 2016, median annual earnings were 1.1% higher in real terms.

It will be interesting to see how spending power pans out after the recent leap in inflation to 2.4%, though.

And it is also important to keep in mind that while there may be limited growth in median earnings, that is not the entire picture because we know nothing of the hours being put in.

People may be earning more, but having to work longer or more jobs to achieve that.

So for the individual, this phenomenon might not be immediately apparent, but they may well look around and ask why the company they work for is making more and more while they do not share in that relative success and simply bump along.

But for the island as a whole, with most companies paying nothing in corporation tax, and such reliance on personal income tax and social insurance contributions to keep the government machine rolling, it is critical.

This over-reliance on income tax as an income stream was one of the themes of the last Assembly – and what the tax, pensions and benefits review of the time hoped to help address.

This inherent problem is only expected to become more acute as the population ages.

Of course, one of the answers to that conundrum – a sales tax – is so unpopular it will not even be looked at this term.

A few tweaks here and there aside, we are, in the short term, heavily reliant on the States controlling spending and getting more income from the operations it owns like the harbours, airport, Aurigny and Guernsey Post.

But the long term? Now there's a question, but do not expect a sales tax to stay off the table.

We should shortly get one of Policy & Resources president Gavin St Pier's quarterly updates on the States and wider finances.

When he spoke to the Guernsey Chamber of Commerce in March, he argued against the idea that Jersey was outperforming Guernsey.

He reminded the audience that Guernsey's economy in 2015 was 10% larger than it was in 2007; Jersey's economy was 10% smaller in 2015 than it was in 2007.

Guernsey's GDP per person in 2015 was 10% higher in 2015 than in 2007; Jersey's was 18% lower in 2016 than in 2017. GDP per person in both islands has for the first time now converged.

He argued, too, that government spending in Guernsey was also under more control than in the sister island.

There are signs of improving economic health, although we are hardly leaping forward.

The population grew by 258 people over the year ending June 2016, 0.41%, the largest increase since 2011.

After two years of falling, the working age population was virtually static.

Median earnings as at 31 December 2016 were £31,656 which, compared with a year earlier, was 2.3% higher in nominal terms and 1.1% higher in real terms.

Since the first quarter of 2015, the number of people in employment has been growing, having fallen since 2011.

Of course, everyone feels the effects of the economic change differently.

Unemployment is highest among the young – and higher for men than for women.

There are more women in low-paid jobs – under £30,000 – than men.

In all higher-earning bands there are more men than women, with the greatest contrast in the highest bracket of £120,000-plus.

While men earn more than women on average, £34,476 compared with £28,339, that gap closed throughout 2016 – male pay went up 1.6%, female 3% in the fourth quarter.

Wage disparity between the lowest and highest median earners is greatest in finance, while income inequality continues to grow as a whole.

So beneath the broad-brush figures, it is important to remember that not everyone shares in the success, and others are shielded against the downsides.

And the future?

All eyes are on Brexit, which has the potential to destabilise even this nascent recovery.

Guernsey is trying to cover all the bases to either ride out any downsides or take advantage of the upsides. But caution must be the watchword here, because no one knows what the outcome will be from the negotiations.