Bloomberg News

Britons Seeing Unprecedented Wage Squeeze Since 2008, IFS Says

June 11, 2013

Britons experienced an unprecedented squeeze on incomes over the past five years as workers accepted pay cuts as the price of keeping their jobs, research published today showed.

Real wages posted the largest five-year drop on record after the recession began in 2008, according to the Institute for Fiscal Studies. A third of workers staying in the same job saw their wages cut or frozen in nominal terms in 2011, it said.

The fall helps to explain why unemployment rose less than in previous recessions, despite the steepest loss of output in a century, according to the report. While larger companies tended to fire workers, smaller ones reduced wages and investment, leading to an unprecedented drop in productivity, the IFS said.

“To the extent that it is better for individuals to stay in work, albeit with lower wages, than to become unemployed, the long-term consequences of this recession in terms of labor-market performance may be less severe than following the high unemployment recessions of the 1980s and 1990s,” said Claire Crawford, program director at the IFS in London.

U.K. unemployment peaked at 8.4 percent at the end of 2011 compared with rates above 10 percent in the aftermaths of the previous two recessions, government data show.

Cuts to welfare mean more lone parents and older workers are remaining in the labor market, increasing the competition for jobs and putting pressure on wages, the IFS said.

In addition, fewer workers belong to labor unions or are covered by collective wage agreements than in the past, it said. Those left to negotiate their own pay got the smallest increases since 2008 and were more likely to experience nominal wage freezes in 2011.

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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