What wage rise?

 The youngest worker today would need to wait until they were almost 100 years old to see the average wage in Britain double from its current levels, according to a study from the Resolution Foundation that highlights the UK’s struggle to boost wages since the credit crunch.

It said failure to improve on recent levels of pay growth would condemn Britain to a wait until 2099 before the current average pay packet has doubled after inflation – much longer than was required before the financial crisis for a twofold increase in real wages. The average pay packet previously doubled every 29 years after inflation, according to the thinktank’s analysis of recent earnings growth and the levels recorded in the years between the end of the second world war and the turn of the millennium.

Figures from the Office for National Statistics for July, the most recent available, show average total pay including bonuses stood at £491 per week, which is about £31 lower than the pre-downturn peak of £522 per week. 

On current trends, in which real wages have grown by 0.7% a year since 2014, the scenario outlined by the Resolution Foundation would mean that even children born today are unlikely to see the average pay packet in Britain double until well after they have retired, with damaging consequences for living standards.

Economists have blamed weak levels of productivity growth in the decade since the crash for the failure to boost workers’ pay because the measure of economic output per hour of work helps companies to generate greater profits with fewer resources – enabling them to raise the wages of their workers. The report said weak productivity growth was the main culprit behind the meagre improvements in workers’ pay seen in recent years, accounting for almost half of the slowdown. Productivity has grown by an average of only 0.8% per year since 2014, down from 2% in the early 2000s.

However, it also blamed an increase in precarious employment since the financial crisis, such as jobs governed by zero-hours contracts and where workers are unhappy with their current roles who were looking for more work. The Resolution Foundation said there are 700,000 people who would like to do more hours and who are actively searching for more work, up from 500,000 before the crisis. The research follows similar findings from two of the world’s leading labour market experts – the former Bank of England rate setter David Blanchflower and the economist David Bell – who argue an unemployment rate taking underemployment into account would be 7.7% rather than the current level of 4.2%.

Research published last week also suggests that almost half of people on zero-hours contracts– which do not guarantee a set number of hours per week – want more regular work and greater levels of job security, while less-than a third use them for the flexibility they provide.

Low levels of unemployment have historically helped to boost workers’ bargaining power to demand higher wages and better working conditions as companies are forced to pay more money to attract scarce workers.

Stephen Clarke, a senior economic analyst at the Resolution Foundation, said: “Britain is living through a painful pay puzzle, where earnings growth remains rooted below 3% even while unemployment has fallen to a 40-year low.”