Living standards are falling for the first time in decades, with rising unemployment and real wage cuts causing domestic spending to fall and our economy to shrink. But shrinking pay is not a recent problem. The proportion of national wealth that goes on wages – the ‘wage output’ ratio – has been falling for over 30 years. In 1978, 58% of the wealth we created went on wages. Today it’s just 53.8%.
The incomes of ordinary workers would be far higher today if the share of national spent on wages was the same as it was in the late 1970s. To find out how much you would have been paid if the ‘wage output’ ratio hadn’t been falling for 30 years, we’ve made this incomes tracker tool. Type in your salary and see how much you would be earning today – and how much of a pay cut you’ve in effect taken.
Furthermore, the richest in society have taken an ever greater slice of the UK’s dwindling earnings pie. The lowest fifth of earners have seen their wage share fall seven times faster than the richest fifth. Meanwhile those at the very top received rapid pay rises that outstripped inflation, growth and the performance of the companies they run.
In the past our shrinking wage pool has been papered over by strong economic growth, a housing boom and rising credit card bills. But we can’t rely on more personal debt to get us out of trouble again.
The falling ‘wage output’ ratio presents a massive challenge for the UK and needs to be addressed. Consumer spending is a huge driver of growth and we can’t build a sustainable economic recovery off the back of people getting poorer. More collective wage bargaining, better skills training and a fairer distribution of wealth are some of the recommendations the TUC makes in our latest Touchstone Extra pamphlet published today: All in this Together.