From the TUC

What does the recovery mean for earnings growth and jobs?

24 Mar 2011, by in Labour market

The Resolution Foundation have done good work showing what the OBR’s forecasts mean for the growing gap between wages and inflation. But how do the levels of wage growth the OBR are predicting compare to the past? Using the method outlined in the OBR’s supplementary tables I have calculated how earnings have grown since the 1970s.

This produces the following chart (the OBR forecast is in red):

But this does not take account of inflation – while average earnings saw extremely strong growth in 1975 inflation was 26 per cent. So the next chart shows the gap between wages and earnings since the 1970s – and highlights some concerning trends:

Not only is inflation forecast to rise more quickly than inflation until the second quarter of 2013, but high inflation will mean that real value of wages will only increase very slowly in the following years. Even in the 1970s, when a period of high wage growth was followed by a several years where inflation outstripped annual wage increases, this was only the case for 9 calendar quarters – according to the OBR’s forecasts UK workers are set for 13 quarters of inflation rising faster than increases in their pay.

The OBR’s updated unemployment forecasts also make interesting reading. They show that while unemployment rose by far less during the recent recession than was the case in the 1980s and 1990s, levels will recover slightly less quickly than was the case in the early 90s and will, five years after the recession started, be slightly higher than they were at the same point after the 1990s downturn:

While unemployment rates will remain lower than was the case in either the recoveries of the 1980s or 1990s (as a result of them being far lower to start with) they will fall less quickly than was the case after the 90s recession.

It’s going to be a long recovery.

Note: data on self-employment are only available from 1992, so to achieve a figure for total employees I have estimated self-employment levels from the 1970s – 1992, based on the average annual rise in self-employment over the last 19 years. The use of an estimate does not make a significant difference to overall trends as the number of self-employed people is small relative the total number of employees.

One Response to What does the recovery mean for earnings growth and jobs?

  1. Private and public debt « Same old played out scenes
    Mar 31st 2011, 10:37 pm

    […] cause further problems to household debts as people lose their jobs, on top of the impact of the falling value of real incomes, as people seek to maintain living standards as far as possible. That’s not rocket science […]