The Staggers

The New Statesman’s rolling politics blog

Chart of the day: the wage squeeze

Real wages for 21-30 year olds have fallen faster than for any other group.

By George Eaton Published 02 March 2012 16:20

The graph below from Bank of England rate-setter Martin Weale graphically displays how the economic downturn has hit young workers hardest. Indeed, the older you are, the less likely you are to have seen your real wages decline.

The likeliest explanation is the disproportionately high level of youth unemployment (currently 22.2 per cent or 1.04 million), which has depressed wages for those in work.

In his speech, Weale also explained why the fall in real wages had lead to a similarly sharp fall in consumption among the young:

Young people have not had much opportunity to build up wealth, so their consumption will depend mainly on expectations of future labour income. Old people, close to or after retirement will, by contrast, expect to finance most of their subsequent consumption out of accrued wealth (including pension rights and entitlements to state pensions and other benefits) and will not find themselves nearly so much affected by adverse movements in either wage rates or employment opportunities.

Hat-tip: Duncan Weldon.

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1 comment

Sun, 2012-03-04 18:56 — Indu Pendent (not verified)

@GeorgeE

Your charts show the longer term benefits of QE1, 2 etc.

As with borrowing for fiscal stimulus (Plan B), the stimulus from QE has been very short lived (see QE1 where is lasted only 3-6 months).

However QE has a lasting benefit in that creates inflation. Combined with currently subdued pay rises and an increasingly flexible workforce it means the competitiveness of the UK is improving. Your graph shows as a nation we are making slow but steady improvement.

Under the last government as you correctly highlight bonuses and salaries especially of higher earners raced out of control creating huge disparity - all part of the Labour promise. People ended up pricing themselves out of their jobs in the world labor market and businesses now offshore their workforces to save money.

We can take consolation that the UK is now on the mend - the improving competitiveness of UK workers will create real long term jobs. Jobs will start to migrate back to the UK but undoing the damage of the last government (under which UK industry declined at its fastest rate since the 1970s) will take a generation.

George, I'm sure you strongly agree that QE1 proves beyond doubt that fiscal stimulus (Plan B) simply does not work for the UK as it leaks out of the economy quickly through imports. But QE does improve competitiveness unlike borrowing which needs to be repaid.