Unprecedented Drop in British Wages, Says Report

June 12, 2013 Updated: April 17, 2014

Despite the recession, Britain’s workers have clung to their jobs, with employment levels holding their own against the economic tide. But a new report shows that to keep those jobs, pay has been sacrificed, with wages dropping at the quickest rate since records began.  

The report by the Institute for Fiscal Studies (IFS) said that over the last five years, pay has been cut in real terms by six per cent. With wages having risen about 2 per cent each year historically, that amounts to a gap of 15 per cent between current wages and those which would have been expected before the economic crisis hit. 

The report says that much of the drop in wages is down to employers taking lower pay to remain in the same job, and not due to people picking up lower paid work after losing higher paid jobs. 

“Larger firms have tended to lay off workers while smaller firms have tended to reduce wages,” said the IFS. 

“In part this seems to be driven by greater labour supply. Lone parents and older workers, for example, are not withdrawing from the labour market as they have in previous recessions, which may in part be driven by changes to the welfare system. This means that workers may be experiencing greater competition for jobs and hence may be more willing to accept lower wages than before.”

Claire Crawford, Programme Director at IFS and Managing Editor of Fiscal Studies, said in a statement: “The falls in nominal wages that workers have experienced during this recession are unprecedented, and seem to provide at least a partial explanation for why unemployment has risen less – and productivity has fallen more – than might otherwise have been expected.”

Her comments chime with other statistics released by the Office for National Statistics yesterday and today which showed that manufacturing in April lagged behind expectations, but that employment had begun to pick up a little. 

David Kern, Chief Economist at the British Chambers of Commerce said in a statement that manufacturing figures were worse than expected. “Longer-term trends are also concerning, as both manufacturing and total industrial output show declined compared to a year ago, and even three years ago.”

“The UK labour market remains robust and is performing well by international standards. However pay, excluding bonuses, remains well below inflation at 0.9%, exacerbating the squeeze on real incomes,” said Kern. 

Paul Johnson, director of the IFS, told the Guardian: “This time really does seem to be different … it has been deeper and longer than those of the 1990s, the 1980s and even the 1930s. It has seen household incomes and spending drop more and stay lower longer.”

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