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New wage squeeze: Londoners hit hardest

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03/07/2017
Young Londoners are hurting most as a pay squeeze returned at the start of the year.

Wages have started to drop since the start of the year. Typical hourly pay for workers living in London and those under the age of 40 is still at least 11% below pre-crisis levels, according to the Resolution Foundation’s latest Earnings Outlook. Northern Ireland also showed weakness.

Real average weekly earnings fell by 0.4% in the first three months in 2017. Part-time pay is the only area where typical hourly pay had returned to its pre-crisis peak by the first quarter of 2017. Female pay was still 2% below peak, while male pay trailed by 6%.

Workers in their fifties and sixties were hit less hard, with pay down 5% and 2% respectively.

Average public sector wages are higher than private sector wages, at £15.18 on average per hour, versus £11.46. They have also seen stronger, long-term growth.

The Foundation said that the current pay squeeze is expected to be shallower and shorter than the significant fall that followed the financial crisis. However, it also pointed out that it is returning before pay packets have recovered from the last squeeze. It is also coming at a time when households are facing rising bills from higher inflation.

The Foundation also examined the impact of the National Living Wage (NLW). This has increased by 12% since its introduction two years ago. The group said it may have reduced incentives to move jobs at the bottom end of the labour market, because the relative returns to moving jobs have declined.

The research showed that for someone near the bottom of the pay distribution (earning more than just 10% of the population) the annual pay increase associated with moving jobs was 21%. Since the introduction of the NLW in 2016, the ‘staying put’ pay rise for such workers has jumped from 3% to 10%. That said, the ‘mover’ premium has also increased to 25%.

The Foundation said that with around one in seven workers expected to be on the wage floor by 2020, progression to get people up the pay scale and out of low pay altogether is a major labour market challenge.

Stephen Clarke, economic analyst at the Resolution Foundation, said: “The pay squeeze made an unwelcome return at the start of 2017 and looks set to stay with us for the rest of the year at least. What’s most worrying is that people’s pay packets still haven’t recovered from the last squeeze when this latest bout of falling pay hit.

“The wages of younger workers and those living in London are still more than 10% lower than they were back in 2008, and this latest squeeze means it will take many more years for their earnings to fully recover.”

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