Saturday, 11 April 2015

The Pound in your Pocket: Pay under Osborne

Andrew Fisher assesses what's happened to wages in the last five years

Sometimes you go to write something and realise that someone else has done it first and done it better. On this occasion I am - and you should be too - indebted to analysis by the LSE's Stephen Machin, who has shown the "real wages of the typical (median) worker have fallen by almost 10% since 2008".

But while his research on both wages (down 10%) and overall household incomes for working age households (down 7%) are useful, there is some other data worth drawing to your attention as well.

An equality of misery

Machin also breaks these figures down to show that men's real wages have fallen by 12% compared with an average 7% drop for women. This in itself casts a new light on the data showing that gender pay gap has narrowed, and the claim made by Equalities Minister Nicky Morgan that:
"Women are a vital part of a long-term economic plan to secure a better future for Britain and this is further proof that the plan is working"
Though Morgan adds that "we should be shouting from the rooftops that these figures are going in the right direction", women workers can really take little cheer from a 7% real terms drop in their wages. Few women will be thinking, "at least it's even worse for men"!

Young people are the hardest hit with a 16% fall in real wages for those aged 18 to 24 - and that's for those in work, with high youth unemployment persisting.

The UK has a pay problem

Machin shows that the UK is unusual in this regard. Of 26 OECD nations, only workers in Hungary, the Czech Republic and Greece have fared worse than UK workers. Of the other G7 nations, workers in the US, Japan, Germany, France and Canada all had real terms increases in their wages since 2008. Italian workers also saw a real terms decrease in wages, though less than a third of the drop of UK workers.

Relative to other nations our GDP per capita growth is less impressive too. While Germany, France, the US and Japan are all performing better than in 2008, in the UK GDP per capita is down (Eurostat data, Dec 2014).

Osborne thought you would be £2,800 a year better off!

In June 2010, George Osborne's emergency budget set out the government's strategy for the Parliament. According to OBR estimates, UK workers' wages would see a significant rise over the Parliament with average pay rises in excess of 5% this year and last!

The graph below shows what has really happened to wages, compared with what it was estimated Osborne's programme would produce in terms of wages:

So whereas real wages should have exceeded inflation between 2010 to 2015, they have in fact undershot inflation.

What this means in cash terms is that today Osborne predicted in 2010 that the average weekly wage would be £537. Instead, the reality is that it is only £483. So if Osborne's economic strategy had been borne out the average worker would be over £2,800 a year better off.

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