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 Downing Street adviser to Gordon Brown and Tony Blair. He tweets @GavinJKelly1.

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Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle