IPR Policy Brief - What are the prospects for a wage recovery in the UK

Paul Gregg, Marina Fernandez Salgado

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Abstract

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

Although, 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 and protracted fall in real wages as earnings are not keeping pace with the cost of living, normally measured by the Consumer Price Index (CPI). 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 in the last recession. However, 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 and what can policy achieve to address the falling value of wages?

Research from the University of Bath - conducted by Professor Paul Gregg and Dr Mariña Fernández-Salgado (Department of Social and Policy Sciences) - compares employment, wage and cost of living data over two distinct periods of recession and recovery (1990-2001 and 2004-2014).
Original languageEnglish
PublisherUniversity of Bath
Publication statusPublished - Oct 2014

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