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Employment

UK wages won’t double until 2099

Poor productivity is to blame, alongside the increase of zero-hour contracts

The average UK wage won’t double until the end of this century, claims a new study.

The research by think tank Resolution Foundation, funded by the Nuffield Foundation, looked into the lack of growth in British pay packets despite unemployment rates hitting a 40-year low. Prior to the financial crash, the average time for wages to double in value was 29 years.

It’s now looking more like 81 years.

The report concluded that poor productivity was primarily to blame, combined with a prevalence of precarious work such as zero-hour contracts. Resolution Foundation senior economic analyst Stephen Clarke said: “Britain is living through a painful pay puzzle, where earnings growth remains rooted below 3 per cent. Understanding the real reasons why pay is performing so badly is one of the biggest challenges we face.”

The think tank said that underemployment and insecure work rates must also be included “alongside unemployment when measuring labour market slack, to recognise that many workers want to take on more hours or find more secure work”.

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It found that 700,000 employed people want to work more hours than they do and are actively searching for work – up 200,000 from before the financial crisis. This undermines the improvement observed in unemployment rates. Few people being out of work typically improve employees’ negotiating position, with employers forced to raise wages to attract the few available workers.

However the high number of people looking for additional hours on top of what they have already secured has removed such a pressure off employers, contributing to wage stagnation.

The increasing education levels found within the British workforce was said to have boosted pay by 0.7 per cent annually prior to the crash, but the report said that this effect has been “muted” due to the levelling off of new graduates entering work.

This shift was blamed for a fifth of the overall deceleration in pay, alongside fewer well-paid jobs being created to replace lower paid roles.

However the study said that weak productivity was behind almost half of the wage slowdown, having grown only 0.8 per cent per year since 2014 – compared to 2 percent as recorded in the early noughties.

Earlier this year, Bank of England (BofE) governor Mark Carney stated that Britain must get used to “uncomfortable” aspects of the economic “new normal” in the aftermath of the financial crash.

“We have to reorient ourselves to current realities,” he said after the decision was taken to raise BofE interest rates.

Clarke added: “Our work has shown that there are three core factors behind Britain’s pay problems – people wanting more hours or secure work, a diminishing ‘skills tailwind’, and terrible productivity growth.

“While the first trend is now fading, tackling the other two related problems isn’t easy. But that shouldn’t stop policy makers doing everything they can to address them as the strength of all our pay rises in the future will ultimately depend on Britain solving its current pay puzzle.”

Image: iStock

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