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12/06/2013 - Wages: You've never had it so bad

"You've never had it so bad". That's the message of new research into the current recession. It found that wages  have fallen by more in real terms during the current economic downturn than ever previously recorded.

One-third of workers who stayed in the same post following the recession suffered a cut or freeze in their wages in cash terms in 2010-11, according to analysis by economic think-tank the Institute for Fiscal Studies.

Once inflation is taken into account, real-terms pay has fallen by more since the recession began in 2008 than in any comparable five-year period, said the think-tank in a working paper for the magazine Fiscal Studies.

This may provide some of the explanation for the so-called productivity puzzle which has seen output fall in UK companies while employment has held up, IFS experts suggested.

They found that many UK companies, particularly smaller businesses, have cut wages rather than lay off staff. Workers have been willing to accept pay reductions because of the fierce competition for those jobs which are available.

Competition for jobs has in part been driven by the fact that lone parents and older workers have not withdrawn from the labour market to the extent they did in previous downturns, possibly because welfare reforms make it more difficult for them to do so, the report found.

Fewer workers are unionised than in the past and those who are not protected by collective wage agreements are more likely to have seen their pay cut or frozen.

Fiscal Studies managing editor Claire Crawford said: "The falls in nominal wages that workers have experienced during this recession are unprecedented, and seem to provide at least a partial explanation for why unemployment has risen less, and productivity has fallen more, than might otherwise have been expected.

"To the extent that it is better for individuals to stay in work, albeit with lower wages, than to become unemployed, the long-term consequences of this recession in terms of labour market performance may be less severe than following the high unemployment recessions of the 1980s and 1990s.
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The research found that the period since 2008 has seen "the longest and deepest loss of output in a century" but that the downturn is different from previous slumps.

Productivity levels have fallen "to an unprecedented degree" but employment has held up far better than in previous recessions..

Smaller firms, which have tended to respond to the tighter economic conditions by cutting wages, have seen productivity fall by an average 7% while firms with more than 250 employees, which were more likely to lay off staff, have seen no change in productivity.

Younger generations have been hit much harder by the downturn than older workers and consumers, the report found.

Patrick Harrington, General Secretary of Solidarity, commented:

"The first thing to note in the IFS study is that those protected by collective Union agreements are not as hard hit in this recession. Isn't that just one more reason for people to band together in Unions?"

 

"It's also clear that households are under a lot of pressure with lower wages coming in. Personal debt is becoming an ever greater problem with pay-day usurers becoming almost mainstream. The recession combined with welfare austerity is pushing some people to the brink. It's time we started to plan our way to a better economic future and not just be flotsam and jetsam tossed about by market waves."