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University of Bath

What are the prospects for a wage recovery in the UK

An IPR Policy Brief to compare employment, wage and cost of living data over two distinct periods of recession and recovery (1990-2001 and 2004-2014).

Between 1978 & 2008 real wages grew at nearly 2% per year.

During past recessions real wages fell short of this trend, as unemployment fell the wage recovery not only re-ignited wage growth, but made up the lost ground.

Since 2008 Britain has experienced an unprecedented & protracted fall in real wages as earnings aren't keeping pace with the cost of living, normally measured by the Consumer Price Index. Real wages have fallen by 10% and are now nearly 20% below the level that would exist today had trend wage growth continued. This equates to a loss of earnings of just under £5,000 per year for the typical worker.

This fall in real wages has helped keep unemployment down through the Great Recession; which is now approaching 6%, some 3 years earlier than the last recession. The price paid in below trend earnings growth continues to rise rapidly. The question is: what are the prospects for a wage recovery in the UK & what can policy achieve to address the falling value of wages?