Real wages have been falling since the 1970s and living standards are not about to recover

31 January 2014

Two pieces of research published today (31 January 2014) show that real wages have been falling since Thatcher’s era in the 1980s, while weak economic recovery under the Coalition does not mean that living standards will recover just yet.

A report from the Office for National Statistics (ONS) revealed that real wages growth has “been on a broadly downwards trend” since the 1970s.

The research measured real-term wages by deflating annual weekly earnings according to Consumer Price Index inflation.

Although inflation fluctuated more rapidly in the 1970s, and was more stable afterwards, the damage to people’s pockets and living standards came much later, the report showed.

In the 1970s and 1980s, real wages growth averaged at 2.9%, but fell to 1.5% in the 1990s and 1.2% in the 2000s. Between 2010 and 2013 alone – while the Coalition has been in power – real wages have plunged by 2.2%.

“The recent episode is the longest sustained period of falling real wages in the UK on record,” the ONS reported.

This is likely to be no surprise to trade unionists who have been close to the deteriorating role of workers’ representatives in negotiating wages and conditions over the past 30 years.

Since Thatcher’s government deregulated the markets and put significant restrictions on trade union activity, profit hungry corporations have been given the green light to slash outgoings wherever possible in order to line their shareholders’ pockets – and that includes through cuts to workers’ wages.

The Institute of Employment Rights (IER) has published a comprehensive set of policy proposals for the next government on how to turn around this trend and allow workers room around the negotiating table to provide a counter balance to the excesses of free market capitalism, reduce the potential for another recession, and improve living standards across the UK.

Indeed, despite a weak recovery in economic growth in the past year, a report from the Institute of Fiscal Studies (IFS) has today shown that the population is not yet feeling a rise in their living standards, and will not for at least another 12 months.

The report showed that real median household income in 2013-14 is over 6% lower than in 2007-08, showing that what recovery the economy has seen so far has not been enough – and has not been affecting the right people.

The study revealed that, although richer households have seen proportionally larger falls in earnings, it is the poor who have been facing the highest rates of inflation, and who have been struggling the most as a result.

This is largely down to government and Bank of England policy, which has focused on protecting the comforts of the middle classes and the wealthy. For instance, the research demonstrated that people who can afford to buy their own property have benefited from the reduction in mortgage interest rates, but some of the largest outgoings for those on low incomes – food and energy –have risen in price much more quickly than average inflation in other products. Food prices surged by 30% between 2008 and 2013, while energy rocketed by a massive 60%.

The IFS claims its report is one of the most reliable, as most other studies have been using out-of-date research. Instead of using the most recently available statistics – which only go up to 2011-12 – the organisation used a modelling technique to estimate the figures affecting people today.

“Different types of households have had quite different experiences of inflation over the past few years,” Co-author of the report, Abi Adams, said.

“Taking this into account can change our views about how the distribution of living standards has changed. Differential inflation has largely undone what would otherwise appear to be a significant reduction in inequality,” he explained.