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The Squeeze on Real Wages – and what it Might take to End it

Published online by Cambridge University Press:  01 January 2020

Paul Gregg ,
Stephen Machin  and
Mariña Fernández-Salgado
Paul Gregg
Affiliation:
Department of Social and Policy Sciences, University of Bath
Stephen Machin*
Affiliation:
Department of Economics University College London and Centre for Economic Performance, London School of Economics
Mariña Fernández-Salgado
Affiliation:
Department of Social and Policy Sciences, University of Bath
*
E-mail: S.Machin@ucl.ac.uk
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Abstract

UK workers have been experiencing unprecedented falls in real wages and living standards. Taking a balanced view of the available data suggests that since 2008 real weekly wages have fallen by around 8 per cent, which amounts to a fall in annual earnings of about £2000 for the typical (median) worker. Three factors are important drivers of these unprecedented real wage falls. First, unemployment has been exerting a larger downward pressure on wages than in previous recessions. Second, low wages and low business investment have created the conditions for an extremely poor productivity record through both the recession and recovery, though this has been good news for jobs. Third, and pre-dating the recession, due to rising inequality the wages of typical British workers are no longer keeping up with productivity gains made in the economy. If sustained increases in real wages are to occur, this requires a return to strong productivity growth and a re-coupling of median wages to productivity.

Keywords

real wagesunemploymentJ31J64
Type
Research Articles
Information
National Institute Economic Review , Volume 228 , May 2014 , pp. R3 - R16
Copyright
Copyright © 2014 National Institute of Economic and Social Research

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Footnotes

This work is partly based on data from the New Earnings Survey/Annual Survey of Hours and Earnings, produced by the Office for National Statistics (ONS) and supplied by the Secure Data Service at the UK Data Archive. The data are Crown Copyright and reproduced with the permission of the controller of HMSO and Queen's Printer for Scotland. The use of the data in this work does not imply the endorsement of ONS or the Secure Data Service at the UK Data Archive in relation to the interpretation or analysis of the data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. We would like to thank two anonymous referees for their helpful comments on an earlier draft.

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