Real wages fall by 8% since the financial crisis says NIESR. 18-25s’ real terms pay falls 14% back to 1998 levels

1st May 2014


Real UK wages have fallen by 8% since the financial crisis began a new report by the National Institute of Economic and Social Research has found.

The report, which examines the economic fortunes of the UK since the crisis, says:  “At the end of 2013, UK GDP was still almost 2 per cent lower than it had been at its most recent peak in the beginning of 2008 and GDP per capita was over 6 per cent lower than it had been six years earlier.

“These out turns were much weaker than could reasonably have been expected in a “normal” recession and recovery.

“At the time of the 2007 Pre-Budget Report, the UK government based its projections for the public finances on the ‘cautious’ assumption of average annual growth of 2½ per cent; this would have meant that GDP at the end of 2013 would have been around 18 per cent higher than the actual outturn. Moreover, employment has increased by over 600,000 since the end of 2007, so that it has taken more workers to produce less output. The result has been an unprecedented decline in real wages of about 8 percent.”

Report authors Paul Gregg, Stephen Machin and Mariña Fernández Salgado say: “The scale of the real wage falls is historically unprecedented, certainly in the past 50 years where broadly comparable records exist.”

The NIESR says that official data this month shows that workers experienced a 7.6% fall in real wages over the past six years. Yet 18 to 25 year olds have been the hardest hit with pay falling by 14% between 2008 and 2013.

“For workers aged between 18 and 25, the fall in real wages in the recent period has been so extreme that, in real terms, wages are back to levels not seen since 1998,” the report says.

Pay in the 25 to 29-year-old age group fell by 12%, taking wage levels back to where they were in 1999.

1 thought on “Real wages fall by 8% since the financial crisis says NIESR. 18-25s’ real terms pay falls 14% back to 1998 levels”

  1. David Lilley says:

    I don’t do history but agree that is can have a role in advising policy what not to do because it didn’t work last time. It can have a minor role in the democrtic process, “debate and scrutiny”.
    But what is the purpose of the above historic discovery? I don’t know without asking NIESRs sponsors.
    I think that I would take issue with everything coming out of NIESR by which I mean it “doesn’t correspond with the facts” and is often simply mischievious.
    In the interests of “going forward” and the useful mission of “problem solving” I include below a contemporary update on GDP recovery and wage recovery from a one man think-tank who is always way head of you.
    “GDP in the fourth quarter of 2013 was still 1.4% below its peak reached in the first quarter of 2008 but the shortfall in onshore output – i.e. excluding North Sea oil and gas extraction – was only 0.5%. Onshore GDP, therefore, is already at a new high, based on the January output data – see chart.” Simon Ward 31st March 2014, Mindfulmoney.

    “A measure of private sector pay incorporating a 12-month smoothing of bonuses rose by 0.9% more than consumer prices in the year to January, confirming that real wages are picking up more strongly than the Bank of England and consensus expected.

    Private sector regular weekly earnings rose by 2.2% in the year to January versus CPI inflation of 1.9% in that month. Bonuses, meanwhile, increased by 8.7% in the 12 months to January from a year before. A measure of total pay calculated by adding regular earnings and a 12-month moving average of bonuses, therefore, rose by an annual 2.8% in January. This pay growth measure was below CPI inflation between July 2008 and November 2013 – see first chart.

    Whole-economy growth, i.e. incorporating public sector workers, is lagging the private sector but was also above inflation in January, at 2.2%.” Simon Ward 19th March 2014, Mindfulmoney.
    With a little respect,
    David Lilley
    No reply expected.

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