From the TUC

A real earnings decline with no precedent

13 Oct 2014, by in Economics

In 2014, UK workers confront the seventh consecutive year of falling real earnings, a situation that has no historical precedent since Victorian times, when records become available.

The total decline in real earnings from 2007 to 2014 is estimated at 8 per cent, on the basis of calendar year figures.

In terms of scale or duration there have been only four comparable episodes in history. The chart shows annual estimates of growth in real earnings from 1856 to the present, drawing on Office for National Statistics (ONS) figures and the Bank of England’s historical database.


Annual real earnings growth, per cent


The comparable episodes are as follows:

  • 1865-7: a recession triggered by the familiar cycle of financial liberalisation, excess and collapse, including the failure of the largest joint stock bank, Overend, Gurney & Co. Ltd.. The crisis coincided with significant advances of trades union organisation, activism and protest, leading to the Representation of the People Act 1867 (Second Reform Act), extending the vote to over one million additional working people, and in 1868 to the founding of the TUC.
  • 1874-8: as the financial capital of the world, the UK suffered heavily in the first global depression, or ‘long depression’, triggered again by exuberance and speculation ending in the financial crisis known as the ‘great panic of 1873’.
  • 1921-3: under the (‘Geddes Axe’) austerity and wider deflation of the economy that were implemented in preparation for the ill-conceived and disastrous return to the gold standard in 1925.
  • 1976-7: in the wake of the inflation of the 1970s, the economy fell into recession over 1973-5; coming out of the decline, wages growth slowed below inflation growth.


The real wage declines in each of these crises lasted two years, apart from 1874-8 when there were four consecutive years of milder declines in earnings. After the declines, earnings growth resumed; in the present crisis, after seven years of more gradual decline there has been no revival.

The chart and table below compare the evolution of real earnings through each of these episodes.

Evolution of real earnings by quarters from pre-crisis peak=100



Key statistics for each episode


After seven years, the pre-crisis peak had not been restored in both the 1874-8 long depression and 1921-3 Geddes-axe deflation. But at present the UK economy is twice as far below the pre-crisis peak than the worse of these episodes, at 8.2 per cent compared to 4.0 per cent under the Geddes axe.

Earnings have therefore seen no comparable decline in history in terms of both size and duration. This is the most severe deflation of earnings ever endured by the UK population.


Other background information

  1. The Bank of England historical statistics were launched in a Quarterly Bulletin article ‘The UK recession in context — what do three centuries of data tell us?’, by Sally Hills and Ryland Thomas of the Bank’s Monetary Assessment and Strategy Division and Nicholas Dimsdale of The Queen’s College, Oxford, 2010, quarter four.
  2. Episodes are chosen when the real earnings decline was above 5 per cent and / or lasted more than two years.
  3. The real earnings figure for 2014 is derived by projecting forwards the July figure as unchanged for the rest of the year, and hence is very conservative. The definitions are in line with the Bank’s historical data series, so that earnings include bonuses and the CPI is used. Note that in his speech to the TUC, the Governor suggested the present real wage decline was 10 per cent, which is based on quarterly data. 

One Response to A real earnings decline with no precedent

  1. Andrew Haldane confirms earnings crisis and fears secular stagnation | ToUChstone blog: A public policy blog from the TUC
    Oct 17th 2014, 4:03 pm

    […] outlines too the failure of the recovery to be felt in pay packets, citing TUC work to support his statement “As best we can tell, the length and depth of this fall is unprecedented […]