Workers getting poorer despite rising employment

Economists have found that the average British salary has plummeted further in the past five years than in any previous recession. Is the wealth returning? Or has prosperity gone for good?

Yesterday morning brought good news for the British economy: after months of rising unemployment, the number of jobless adults fell by 5,000 to reach its lowest level in two years. Prime Minister David Cameron hailed the figures as evidence of a gathering recovery.

But just as the government celebrated this modest success, a respected think tank called the Institute for Fiscal Studies released a report which painted a far bleaker picture of long-term trends.

It is true, said the report, that levels of unemployment have not reached disaster levels since the 2008 financial crisis, as they did in previous recessions. And the upward trend is an encouraging sign. But while more than 92% are still in work, the average worker’s wealth has sharply declined.

Although wages are still nominally rising, the price of goods has been increasing significantly faster due to inflation. In real terms, UK salaries have decreased by 6% in the last five years, while 70% of people experienced cuts to their pay. Millions of people are having to sacrifice luxuries they once accepted, and many struggle to make ends meet.

Thanks to expensive housing and a slow economic recovery, Britain has been hit particularly hard by this ‘cost of living crisis’. But it has not suffered alone: the International Labour Organisation says that wages around the developed world have slumped on two occasions since 2008.

Is this sharp drop in wealth simply what we ought to expect in a time of economic strife? Not necessarily. During previous recessions, such as those of 1990 and 1979, earnings have in fact risen.

What makes this time different? Part of the answer might lie in changing patterns of work: there has been a rise in part-time work and flexible hours. That would also explain the fact that productivity – the amount of work done per person – has dropped.

But there may be another explanation too: this economic slump could be not a momentary blip in the general pattern of steadily increasing wealth, but a permanent reversal of that trend.

The end of growth?



Decades of abundance have spoiled us, say some economists: speedy technological advances and a huge development advantage over the rest of the world have led us to expect that things will always get better. But 2008 marked the end of this boom period, they say – it’s time to adjust our expectations and accept that, for most people, the future will be a poorer place than the past.

What senseless pessimism, others respond: these last five years have been tough, but we mustn’t simply accept economic misery as the norm. If we keep the faith and pull together, better times will come.

You Decide

  1. If you had to decide now what you would most like to do when you have finished your education, what would you say?
  2. Do you expect to have a materially better life than your parents?

Activities

  1. Write down the three top tips you can find or think of for how to get a job.
  2. If the rate of inflation is 2.4%, and your wages rise from £20,000 to £22,000 per year, what is the percentage change in your real terms income?

Some People Say...

“People in rich countries could do with a little less luxury.”

What do you think?

Q & A

What does this mean for me?
On the question of long-term wage trends, it’s too early to tell: perhaps you will have to scale down your material expectations, but nobody knows for sure. As for the uptick in unemployment: good news! Young people have suffered most from unemployment in this recession, so if this is the beginning of a recovery then it is you who have the most to gain.
How can I make sure I don’t end up unemployed?
The main thing is to have a plan: think about what you love and what you are good at, talk to careers advisers and find something that fits your talents. You don’t have to plan your whole life out from the start, of course, and uncertainty is fine. But don’t just wait around hoping that something will come up: the jobs market is tough, and to make the best of it you must be active!

Word Watch

Think tank
A non-governmental institution that carries out political and social research and recommends policy changes to tackle various issues.
Financial crisis
The economic slump from which the world is currently recovering was originally sparked by the collapse of the US housing market due to risky handling of mortgages by banks and the government. This had a knock on effect which caused banks to fail in many countries, and threw economies with high levels of debt into crisis.
Nominally
In straightforward numerical terms, not taking inflation into account.
Real terms
An adjustment economists make to take account of inflation – that is, the yearly rise or fall in the value of goods and services. Real terms change measures the actual spending power of money rather than just the raw numerical value it is given.
Cost of living crisis
This phrase has been used by many commentators in recent years, including the Opposition Leader Ed Miliband.

Subjects

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