Department of Social & Policy Sciences

'Real wage growth fails to recover': report out today

Thu Oct 16 10:17:00 BST 2014

Since the financial crisis in 2008, Britain has experienced an unprecedented and protracted fall in ‘real wages’ – those adjusted for inflation - by up to 10 per cent. This means that wages today are nearly 20 per cent below a level that would exist had wage growth continued, and nearly £5,000 less annually for a typical British worker.

Despite unemployment having fallen rapidly since the peak in 2011, today’s report highlights that government cannot rely on this measure alone to re-start sustained wage growth. Instead, it argues, productivity growth, and hence business and infrastructure investment, and greater equality in the distribution of the proceeds of recovery, are all needed to ensure real wage recovery.

Lead author of the report from the University’s Department of Social & Policy Sciences, Professor Paul Gregg explains:

'The recent fall in unemployment is likely to be sufficient to stop real wages falling further by the end of 2014. Continued falls in unemployment will lead to modest wage recovery, but this alone will not go far enough.'

'For a sustained wage recovery, the economy needs to generate a return to the levels of productivity growth seen over the 25 years before the crash, but that has been notably absent over the last six years. As labour gets scarce and more expensive, we should expect firms to increase investment generating productivity improvements. However, even this will not be enough for sustained real wage gains unless the distribution of the returns from productivity growth can be channelled back to ordinary workers.'