Young people’s wages: the numbers look scary… because they are scary

The squeeze on young people's pay is only going to get worse.

The economic plight of young people has been one of the recurring themes of recent years – most importantly the rise of youth unemployment which has topped one million and the steep rise of long-term youth unemployment. Yet for all the debate about the labour market position of young people, very little attention has been given to their wages.

If we look back over the last decade what we see appears rather scary. It’s very widely known that typical real wages have been falling post-crisis, and that they stagnated for some years prior to the recession across the wider working population.

But those aged 16-29 didn’t just experience stagnation – they saw a significant fall in wages, which has carried on since 2008: typical pay fell for this group by 6.4 per cent from 2003-2010, or 8.6 per cent for men. And if we add to this the typical wage squeeze that occurred across the working population in the annus horribilis of 2011 this suggests a wage fall of over 10 per cent for young people during 2003-2011. And it will get worse yet.

Source: Resolution Foundation analysis of ASHE

It’s not immediately obvious what is happening here and different accounts are possible.

One view would be that this isn’t really a story about what is happening to the wages of the British born workers, it’s just a description of the greater migration that occurred in this period. According to this argument the composition of young workers in Britain has changed and so, therefore, have wages: as young foreign workers tend to be concentrated in low-paying sectors, so typical wages have fallen. 

I haven’t seen a definitive study specifically on the impact of migration on the wages of young workers, so it’s important to tread carefully. But I’d be very surprised if this change in the composition of young workers didn’t account for any element of these findings, just as I’d also be surprised if it accounted for all of it. The ONS has looked at the wages of British born and non-British born young workers during the years running up to the crisis. Looking at the 18-24 group, to the extent that there is a discernible pattern it is that the wages of the non-British born group were higher than their British born counterparts up until 2004. They then they fell behind in 2005 and 2006, before the situation was reversed again in 2007 and 2008.  At first glance it doesn’t look decisive.

Another account might be that the chart above is really just capturing a growth in part-time working (with lower wage rates) among young people which is dragging down median wages. Again, there is likely to be an element of this occurring but it can’t be the only factor. If we just look at what is happening to full time median wages we see they also fall through this period– though a smaller amount than for all employees.

Alternatively, and for me more plausibly, it could be that these numbers look scary because they are, actually, genuinely scary. For many economists the performance of young people in the jobs market is a barometer – or an early warning signal – of the health of the wider economy.

Even though the overall UK economy kept growing from 2004-2008 it is noteworthy that sectors where young people tend to work were struggling during this period (a point emphasised by the recent David Miliband-led ACEVO commission). The recession may have hit the young before the rest of us. Wholesale, retail, hotels and restaurants are by far the largest employers of young people. They saw an increase of around 300,000 jobs between 2001 and 2004 before employment plummeted by around 200,000 between 2004 and 2007. Falling demand in key sectors may well have put downward pressure on young people’s wages as well as on employment levels. On top of this, it’s also likely to have eroded opportunities for career progression – with fewer ladders and more snakes – making it harder to get a promotion or an upward move to a new job (which may well affect earnings mobility over the longer term).

And we should bear in mind the importance of the national minimum wage (NMW) in this debate. Dramatically more young people are paid at or near the NMW than is the case for the rest of the workforce, so changes in its level have a larger knock on effect on the wages of this age group. Following steep increases from 1999-2003 the minimum wage then levelled off in real terms from around 2004 (the same is true for the young person’s rate). So a weakening in NMW policy over time may be part of the explanation. 

Young people in the UK are not the only ones suffering persistent falls in wages. The Economic Policy Institute in the US have analysed the far starker trend in young people’s wages there (though they don’t consider migration effects). Looking specifically at the entry level wages of 19-25 year olds for both high school and college graduates the EPI show that rising wages for young people have been the exception rather than the norm over recent decades. Male high school graduates saw a 25 per cent fall in hourly wages between 1979 and 2011; even male college graduates only secured a five per cent rise over this whole period (women performed significantly better, though starting from lower wage levels).

In the UK youth unemployment is - or at least should be - public enemy number one. It dominates all else. But when steady growth eventually returns it is essential that we have a jobs market that sees wage gains reach all age groups. After the long fall, the young need a pay rise more than any. 

 

Jobseekers queue outside a Jobcentre. Photograph: Getty Images

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Britain has built a national myth on winning the Second World War, but it’s distorting our politics

The impending humiliation of Brexit is going to have a lot more in common with Suez.

The Crown, Peter Morgan’s epic drama covering the reign of Elizabeth II, ended its first series with a nemesis waiting just off-stage to shake up its court politics. In the final episode, Egyptian president Gamal Nasser gives a rip-roaringly anti-imperialist – and anti-British – speech. The scene is set for the Suez Crisis to be a big plot point in Season 2.

Suez has gone down in history as the great foreign policy debacle of postwar Britain. The 1956 crisis – which saw Israel, France and Britain jointly invade Egypt to take control of the Suez Canal, only to slink off again, nine days later, once it became clear the US wasn’t having any of it – is seen as the point at which it became clear that even the bigger states of Europe were no longer great powers in the world. “President Eisenhower’s humiliation of Britain,” Jack Straw wrote in his 2012 memoir, “had been total.”

This was, though, a fairly limited sort of humiliation. Britain was not invaded or occupied; there was no sudden collapse in living standards, let alone a significant body count. Our greatest national debacle is nothing more than the realisation that Britain could no longer do whatever it wanted without fear of reprisal. As humiliations go, this one’s up there with the loss of status men have faced from the rise of feminism: suddenly, Britain could do what it wanted a mere 80 per cent of the time.

The Crown begins in 1947, when Prince Philip gives up his Greek and Danish royal titles and becomes a British subject, so that he can marry Princess Elizabeth. That year saw another British foreign policy debacle, one on which the show remains oddly silent. In the partition which followed India’s independence from the British Empire, 70 years ago this week, upwards of a million people died; in the decades since, the borders drawn up at that time have been the site of numerous wars, and Kashmir remains a flashpoint.

All this, one might think, might count as a far bigger regret than Suez – yet it doesn’t feature in the national narrative in the same way. Perhaps because partition was about the withdrawal of British forces, rather than their deployment; perhaps it’s simply that it all happened a very long way away. Or perhaps we just care less about a body count than we do about looking bad in front of the Americans.

I think, though, there’s another reason we don’t talk about this stuff: the end of empire is hidden behind a much bigger part of our national myth. In the Second World War, Britain is undeniably one of the good guys; for 12 months, indeed, Britain was the only good guy. Never mind that it still had the largest empire the world had ever seen to fall back on: Britain stood alone.

The centrality of the Second World War to the national myth warps our view of history and our place in the world in all sorts of ways. For starters, it means we’ve never had to take an honest account of the consequences of empire. In a tale about British heroes defeating Nazi villains, British mistakes or British atrocities just don’t fit. (Winston Churchill’s role in the 1943 Bengal famine – death toll: three million – by ordering the export of Indian grain to Britain rarely comes up in biopics.) In this dominant version of the national story, the end of empire is just the price we pay to defeat fascism.

More than that, our obsession with the Second World War creates the bizarre impression that failure is not just heroic, but a necessary precursor to success. Two of the most discussed elements of Britain’s war – the evacuation of Dunkirk, and the Blitz – are not about victory at all, but about survival against the odds. The lesson we take is that, with a touch of British grit and an ability to improvise, we can accomplish anything. It’s hard not to see this reflected in Brexit secretary David Davis’s lack of notes, but it’s nonsense: had the Russians and Americans not arrived to bail us out, Britain would have been stuffed.

Most obviously, being one of the winners of the Second World War infects our attitude to Europe. It’s probably not a coincidence that Britain has always been both one of the most eurosceptic EU countries, and one of the tiny number not to have been trampled by a foreign army at some point in recent history: we don’t instinctively grasp why European unity matters.

Once again, Suez is instructive. The lesson postwar France took from the discovery that the imperial age was over was that it should lead a strong and unified Europe. The lesson Britain took was that, so long as we cosied up to the US – Athens to their Rome, to quote Harold Macmillan – we could still bask in reflected superpower.

Until recently, Britain’s Second World War obsession and national ignorance about empire didn’t really seem to affect contemporary politics. They were embarrassing; but they were also irrelevant, so we could cope. Brexit, though, means that hubris is about to run headlong into nemesis, and the widespread assumption that Britain is a rich, powerful and much-loved country is unlikely to survive contact with reality. India will not offer a trade deal for sentimental reasons; Ireland is not a junior partner that will meekly follow us out of the door or police its borders on our behalf. The discovery that Britain is now a mid-ranking power that – excepting the over-heated south-east of England – isn’t even that rich is likely to mean a loss of status to rival Suez.

Morgan says he has planned six seasons of The Crown. (This looks entertainingly like a bet the Queen will be dead by 2021; if not, like Game of Thrones before it, he might well run out of text to adapt.) It’ll be interesting to see how the show handles Brexit. It began with the royal family facing up to a vertiginous decline in British power. As things stand, it may have to end the same way. 

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear