End in sight for UK's worst wage squeeze since 1920s

The UK's record real wage squeeze may finally be coming to an end new research suggests.

Since the start of 2008 real pay has fallen by almost seven per cent, says the Capital Economics report. (Release)

According to the report, whilst some recovery is expected in overall incomes, a sharp rise in income growth is unlikely. Many remain jobless and benefit cuts are set to continue.

Having said that, the propect of a steady fall of inflation will ease the squeeze and, if the recovering economy means a productivity increase, firms will be able to up wages.

We anticipate overall real disposable income to rise next year, but only by 1%. It will probably take until 2015 before income growth gets close to its long-run average of about 2.5%.

We have seen that the picture of falling wages in recent years hasn’t been quite as gloomy for overall incomes. Looking forward, the income squeeze should be coming to an end. But the recovery in overall incomes will be modest, with the possibility of a pick-up in wages growth being offset in part by a squeeze on non-work sources of income. Meanwhile, poorer households could well lag behind, while older people should continue doing relatively well, at least for the rest of this Parliament.

Attitudes towards the significance of the rise and fall of real pay can, however, differ:

In the short run, coming out of recession, the biggest difference the government (and I mean you, Carney et al) can make to British “living standards” is to deal with the problem of unemployment and under-employment. In that short run, the growth of real hourly wages is inversely correlatedwith rising employment and hours worked. Hence I think it is reasonable to argue that falling real wages are a good sign that British living standards are rising because it will be a good sign that employment and hours are rising.