No bones about it: the worst real earnings decline in at least 162 years
Frances O’ Grady’s immediate reaction to the Autumn Statement was that
Today’s OBR forecast shows that the average annual wage will be £1,000 lower in 2020 than predicted at the Budget. And this is on top of wages still having not recovered to their 2007 levels. This is yet another blow to ordinary working people’s standard of living.
Yesterday Paul Johnson of the IFS offered his assessment:
On these projections real wages will, remarkably, still be below their 2008 levels in 2021. One cannot stress enough how dreadful that is – more than a decade without real earnings growth. We have certainly not seen a period remotely like it in the last 70 years.
In fact there is no other period like this on record. The chart below updates our previous assessment, showing each episode of earnings decline since 1854. Each line starts at the peak and then tracks the movements as real earnings decline and then recover, first back to the pre-crisis peak (the dotted grey line) and then beyond.
The present decline has now run for eight years, and we are in the ninth. We now stand well below the corresponding point of all previous declines, with three of the five already having restored the pre-crisis peak.
The most comparable decline is that from 1921, through the dark 1920s and into the great depression. Even in that decline real earnings were restored to the pre-crisis peak after ten years. The OBR figures suggest that the latest pre-crisis peak will only be restored in year 14, i.e. 2021. So this is the longest decline in real wages since at least 1854, i.e. 162 years from 2016.
Real earnings declines through history: indices, pre-crisis peak=100
While some are challenging the OBR forecast, the record on earnings so far is of over-optimism. The idea of earnings even recovering their pre-crisis peak increasingly looks wildly optimistic unless we see a material change in policy.