Wage falls sharper than ever, says IFS research

The fall in wages during the economic crisis is the worst ever, according to new research. Picture: TSPL
The fall in wages during the economic crisis is the worst ever, according to new research. Picture: TSPL
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WAGES have fallen by more in real terms during the current economic downturn than ever previously recorded, according to research by the Institute for Fiscal Studies (IFS).

There was an “unprecedented” impact on wages even for those who have remained in work during the financial crisis. The findings led to warnings of a “lost decade of austerity” and calls for the UK government to change course on its economic policies.

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 the economic think-tank.

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 paper for the magazine Fiscal Studies. IFS experts suggested that their analysis provides a partial explanation for the so-called productivity puzzle that has seen output fall in UK companies while employment has held up. They found that many UK companies, particularly smaller businesses, have cut wages rather than lay off staff. Workers have accepted pay reductions because of the fierce competition for jobs.

The research findings were greeted with dismay by the SNP, which blamed Labour for triggering the financial crisis and criticised the UK government for failing to alleviate it.

Stewart Hosie MP, SNP Treasury spokesman, said: “Real wages have fallen by more than in any other five-year period, a fact that will not have been lost on families around the UK who are struggling to make ends meet.

“The recession started by Labour, and which dragged on because of the Tory/LibDem coalition’s economic incompetence, has also led to the ‘longest and deepest loss of output in a century’ – threatening a lost decade of UK austerity.

“The Westminster coalition has proved completely incapable of creating any growth and economic activity is flatlining.”

Labour blamed the UK government and the Scottish Government for not doing enough to relieve financial hardship. Ken Macintosh, Scottish Labour’s finance spokesman, said: “Wage cuts, pay freezes and working fewer hours are all sacrifices many individuals have had to make to keep their job, but at great cost to their families.

“What we need is a government investing in skills and training, in productivity and high-quality jobs, not one cutting college budgets and giving millions in grants to companies like Amazon.”

The IFS document found that 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.

Fewer workers are unionised than in the past. Those 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.”