Wages have not risen above inflation for three decades—but that may changeby Hamish McRae / February 20, 2014 / Leave a comment
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Will 2014 be the year of the pay rise? There are signs that it just might. In Britain in January, job vacancies grew at their fastest for more than 15 years. Salaries for permanent staff rose, according to a survey by the Recruitment and Employment Federation and KPMG, while the Office for Budget Responsibility predicted that real wages—taking account of inflation— will finally begin to rise after five years of stagnation.
If so, that would shatter the pattern that has held in Britain, the United States and much of the developed world for an astonishingly long time—almost three decades—in which wages did not rise faster than inflation. Economists have clashed over the reasons for this phenomenon, which is one of the most studied and most controversial of recent times. This is inevitably a debate that begins with numbers, but it is also a debate about changing structures of employment—about the way we live and work today, which extends to sweeping predictions about the impact of technology and globalisation. Politicians, meanwhile, have found it fertile ground: anxious to respond to widespread distress and alarm, and hopeful that they can do something about it (although it is not clear they always can—see p32).
It’s already evident that wages and living standards will be one of the battlegrounds of the 2015 general election, with fistfuls of recent statistics invoked on either side of the argument. Matthew Hancock, the Skills Minister and former Chief of Staff for George Osborne, seized on the January figures, arguing in an article in the Times that Britons are indeed better off than a year earlier. “Last year,” he wrote, “take-home pay grew faster than inflation for every group of earners except the top 10 per cent.” But others retorted that data recently provided by the Office for National Statistics (ONS) suggested the opposite: that, depending on what measure you use, earnings are still lagging behind inflation.
So, what has been going on? And why? The roots stretch back before the 2008 financial crisis and recession that followed. Britain has been stuck in a spiral of declining wage growth for over three decades. According to the ONS, real wages grew 2.9 per cent in the 1970s and 80s, 1.5 per cent in the 90s, 1.2 per cent in the 2000s and fell by 2.2 per cent…