From the TUC

No bones about it: the worst real earnings decline in at least 162 years

25 Nov 2016, by in Economics

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

real_earn_162

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.

 

2 Responses to No bones about it: the worst real earnings decline in at least 162 years

  1. P
    Nov 30th 2016, 5:20 pm

    I assume that the OBR forecast doesn’t include (a) any further decline in sterling and uptick in prices unmet by real gains and (b) any substantial recession between now and 2021.

    Given the huge current account deficit (a) is basically a certainty. And given that the economy is running on a property bubble (b) is a high likelihood.

    The reality is that this has gone beyond a simple growth versus austerity or labour versus capital issue. The UK is in absolute and total terminal decline driven by the decimation of the manufacturing sector and the ability of British consumers to buy British products.

    This is the dire decline that the New Cambridge school (Kaldor, Godley, Cripps etc) warned about from the 1970s on. This is really, really bad. I genuinely do not think that it is too much to say that the country has reached the end of its tether.

  2. Good pensions or a pay rise? A response to the ILC-UK
    Dec 23rd 2016, 11:47 am

    […] It is a compelling argument for many coming after a prolonged period of stagnant wage growth. […]