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'Real' wages lowest since Second World War

Written by Dara Jegede on Thursday, 13 February 2014. Posted in Finance

We're not out of the woods yet, either – employees expect pay rises to remain below inflation in 2014

'Real' wages lowest since Second World War

The British are coming but we’re definitely not marching to the beat of a shedload of pounds ringing in our pockets. And the apparent reason for this is because we’re not getting paid enough. 

The most recent in the series of Megatrends reports by the CIPD, the professional body for HR, has revealed that average weekly earnings are at a significantly lower level than they were five years ago, causing a squeeze on British household finances. To rub salt in the wound, this period of decline in real average earnings has been the longest since 1945.

Whilst figures show that 54% of private sector employees received a pay rise in 2013 - with 51% and 43% in the voluntary and public sector respectively - only a minority (36%) received a real-terms rise to improve their standards of living.

Interestingly, average earnings have increased faster than prices for most of the post-War period. However, things, it seems, started to go downhill in January 2009, when average weekly earnings (excluding bonuses) fell by 8% - if measuring the rate of inflation with the consumer price index (CPI) - or by 10.2% if the retail price index (RPI) is used.

Another report by the CIPD, Employee Outlook: Focus on employee attitudes to pay and pensions, inflates our fiscal blues, showing that a third of employees expect no pay increase in 2014 and a further third are expecting a similar rise in their wages for 2014 as they experienced in 2013, when the median rise was below-inflation 2%. 

The cause for the stagnation in wages is uncertain but some blame has been attributed to reduced productivity levels during the recession, meaning that less money was available for wages. Perhaps there is some consolation in the fact that the wage slump is not unique to the UK with news that real earnings for the median full-time worker in the USA were no higher in 2013 than they were in 1979. More worrying still is that experts believe that such a trend could extend to the UK. 

It’s not all doom and gloom, however. Forecasters anticipate that average earnings growth will increase as economic growth consolidates, but there is uncertainty as to whether this will produce real-term wage growth. A lot is said to depend on how quickly labour productivity – which is still nearly 4% below its pre-recession level – recovers.

To put this in perspective, in the short-term, average earnings will continue to lag behind inflation and this trend is expected to continue. In the long-term, real earnings growth can only occur if we see sustained growth in labour productivity. Government policy will therefore have an important role to play in this regard.

“The politically charged debate about wages and the cost of living won’t be solved by politicians trading blows over statistical analyses,” commented Mark Beatson, chief economist at CIPD. “Instead, we need to recognise as a nation that real increases in pay will only be delivered through increases in productivity – and that for this to happen we need employers, employees and policy makers to come together in a combined effort to improve UK productivity.” 

 

About the Author

Dara Jegede

Dara Jegede

Jegede recently left the London School of Journalism having previously embarked on a soul-searching stint in the city of love. That's Paris, by the way.

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