UK employees experience record pay cuts

In the period since 2008, real wages in the UK have fallen by more than in any comparable five-year period, according to research by the Institute for Fiscal Studies (IFS).

The research, which was published as part of the IFS’s journal Fiscal Studies, found that a third of UK employees saw their wages cut or frozen between 2010 and 2011.

It also found:

  • Larger organisations have tended to lay off workers, while smaller organisations have tended to reduce wages.
  • Workers may be experiencing greater competition for jobs so may be more willing to accept lower wages than previously.
  • Fewer workers are now unionised or covered by collective wage agreements. Wage growth since 2008 has tended to be lower among employees who were not covered by such agreements, and were more likely to experience nominal wage freezes in 2011.

Claire Crawford, programme director at IFS and managing editor of Fiscal Studies, said: “The falls in nominal wages that workers have experienced during this recession are unprecedented, and seem to provide at least a partial explanation for why unemployment has risen less and productivity has fallen more than might otherwise have been expected.

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