Half of workers saw real-terms pay cut last year, research finds

23 Mar 2021 By Francis Churchill

Think tank analysis shows strong wage growth was predominantly caused by job losses among lower earners

Half of workers experienced a real-terms pay cut last year despite official data suggesting a record rate of pay growth, a new report has revealed.

In its latest quarterly Earnings Outlook, which is based on real-time data on employee jobs, the Resolution Foundation said the median pay rise among individuals in work was just 0.6 per cent in the third quarter of last year – meaning that at least half of workers received a pay increase of this level or lower.

Once taking into account the cost of living, the Resolution Foundation calculated this to be a real-terms fall in pay of 0.2 per cent.

The median pay rise increased to 1.8 per cent in the last quarter of 2020, which the think tank said was equivalent to a real-terms 1 per cent pay rise, but this was still the second lowest since the middle of 2013.

The report also found that while the nominal average growth in weekly earnings across the economy reached 4.5 per cent late last year – the highest since 2001 – half of this was accounted for by lower-wage employees falling out of the labour market.

Hannah Slaughter, economist at the Resolution Foundation, said any headline data showing “bumper pay packets” was “too good to be true”.

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“In reality, half of all workers experienced a real-terms pay cut last autumn, with pay growth deteriorating most among those who have been hit hardest by the pandemic – the young, the low paid and those working in social sectors like hospitality,” she said. 

The report found earnings growth among higher-paid workers remained relatively strong and stable, fluctuating between 2.4 and 2.6 per cent between April and December 2020; however, pay growth was more volatile among lower-paid workers, fluctuating between 0.2 and 1.4 per cent.

The analysis also revealed younger workers experienced the biggest deterioration in annual pay growth. For those aged between 18 and 24, who were still in work a year on, the rate of pay growth halved to 6 per cent in 2020, down from 12.3 per cent in 2019. Similarly, those aged 25-34 saw pay growth fall to 1.4 per cent, down from 4.9 per cent over the same period.

“This pay deterioration is particularly concerning for young workers as it risks scarring their pay for many years to come,” said Slaughter. “The government should therefore prioritise getting young people’s pay and careers back on track during the recovery, and that is likely to require further policy action beyond that announced in the budget.”

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