Economic Viewpoint: The real wage debate

Why is unemployment so high in Britain? Is it because demand is too weak or is it because real wages are too high? Many participants in the debate are trying to insist that it must be one or the other. In practice it is perfectly sensible to believe that both causes are involved, so that a fall in unemployment will require both a rise in demand and a fall in real wages. In this Economic Viewpoint we discuss the economic analysis involved; we investigate some of the relevant evidence and we explore some policy options.