Pay: the lost decade

13 Nov 13

Recent good news on the jobs front should not obscure the fact that real wages have been falling for at least four years. Overall, the wage squeeze has created a lost decade for pay

New Office for National Statistics data out this morning confirms what many workers will already know: the wage squeeze continues. In fact, wages have now been falling in real terms for four years.

Today’s new figures show that average wages (excluding bonuses) rose 0.8 per cent comparing July to September 2013 with the same period a year ago. This is well below the current rate of inflation, which is 2.2 per cent CPI and 1.9 per cent RPIJ (the improved variant of the Retail Prices Index now produced by the ONS). The average weekly wage now stands at £447.

This latest release of data (which runs up to September) means that annual wage growth (excluding bonuses) has now been outpaced by inflation for 48 months in a row. Annual CPI inflation has now been higher than average wage growth for the last 48 months of data. Both the RPI and RPIJ measures of inflation have been higher than wage growth for 46 months.

But it’s only when you look at the cumulative impact of this squeeze on pay that you see how big the hit to living standards has been. Under pretty much any measure of inflation, we’ve now had an entire lost decade for pay, with average real wages having either fallen or seen no growth in the last ten years.

Using the CPI measure of inflation, for example, wages were £445 a week in September 2003 compared to £447 in the latest data for September 2013. That equates to average growth of just 0.04 per cent a year over the decade.

Under the RPI measure, which includes the cost of mortgage interest payments but which is now less favoured by statisticians, things look even worse. Under this measure, wages were £471 a week in September 2003 compared to their £447 level today, meaning wages have fallen at an annual average pace of 0.5 per cent a year over the decade.

It is important to stress that the continuing weak performance of wages contrasts, yet again, with positive news for employment, which continues to improve in the latest data. Today’s new figures show that unemployment fell by 48,000 in the past year, with the unemployment rate falling to 7.6 per cent – down 0.2 percentage points from a year earlier.

Comparing the period July to September with a year ago, there were 378,000 more people in employment, raising the all-important employment rate for 16-64 year olds to 71.8 per cent.

Even so, four years of falling wages now put us well and truly in uncharted waters. This week’s announcement of a fall in inflation will ease the pressure on pay packets to a degree, but wage growth itself still remains historically weak.

Until that picks up, analysts are right to worry about the sustainability of the recovery — with pressure on household incomes from other sources, consumer spending rests heavily on a return to rising pay.

Full details of the Foundation's analysis of the ONS data can be found on its website

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