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The record since 2010

• The 2010s saw rapid growth in employment, which reached a record high working-age employment rate of 76.2 per cent at the start of 2020, up from 70.3 per cent in 2010. This rise was concentrated among lower-income households and women, in part driven by households increasing their labour supply to make up for income shocks following the financial crisis, and by older workers as the State Pension age went up.
• Post-pandemic, progress has been reversed: the UK is one of only six countries of 38 in the OECD whose employment rate has fallen since 2019 – it stood at 74.3 per cent in early 2024. This has been partly driven by an increase in ill-health among working-age adults.
• The 2010s were marked by a long-standing wage stagnation, driven first by the post-financial crisis squeeze (and sluggish recovery) and then compounded by the cost of living crisis. Average wages are now only £16 a week, or 2.5 per cent, higher in real terms than they were at the time of the 2010 election.
• Other countries have also seen slower wage growth post-financial crisis, but the UK’s slowdown has been greater. Had our wages grown at the same rate as the US or Germany since 2010, the average British worker would be earning £3,600 more each year.
• But while the record on average wage growth since 2010 is poor, successive Conservative governments have boosted pay for the lowest earners with ambitious increases in the minimum wage. Between 2011 and 2023, real hourly pay rose by 26 per cent for bar staff, 24 per cent for waiters and 20 per cent for cleaners, compared to just 1.9 per cent at the median. Inequality in the bottom half of the hourly pay distribution (measured as the ratio between the median and the tenth percentile) is the lowest since at least the mid-1970s.

Comparing Conservatives’ and Labour’s policies on the labour market

• There is significant divergence between the two main parties on labour market policy. On the minimum wage the Conservative Party has suggested it would maintain the minimum wage at two-thirds of typical hourly pay, which implies a rise to just under £13 in 2029 given current forecasts for wage growth. The Labour Party has hinted at greater ambition by pledging to make the minimum wage “a genuine living wage” that “[accounts] for the cost of living” – but what they mean by this remains unclear. One interpretation is that the minimum wage will be increased to match the real Living Wage – an ambitious policy, raising the bite of the minimum wage to 70 per cent if implemented today.
• On wider labour market reform, the Conservative Party does not have proposals for changes, while the Labour Party proposes a comprehensive overhaul. Perhaps the most radical suggestion is the proposal to introduce a ‘day one’ right to protection against unfair dismissal. The UK’s current two-year wait for this right is unusually long compared to other nations (and the UK’s past). But Labour’s exact policy here is not yet clear – it has said it would maintain probationary periods, which would allow firms to more easily dismiss new hires – but we do not know what their duration might be or exactly how this would work.
• The overall link between employment regulations and the unemployment rate is very weak, but there is more evidence of a trade-off with hiring rates, highlighting the need for careful implementation and effective use of probationary periods.
• Labour’s other proposals include:
  • Extending Statutory Sick Pay (SSP) to all employees, bringing into scope 1.1 million people who currently earn too little to qualify, as well as increasing the level (by an unspecified amount) and getting rid of the three-day waiting period.
  • Giving workers a right to a contract that reflects the hours that people actually work and a minimum notice period for shifts.
  • A ‘Fair Pay Agreement’ covering the 1.7 million workers in the social care sector, where poor pay and conditions are contributing to a recruitment and retention crisis.
  • A new Single Enforcement Body to police labour market rights, building on proposals put forward by the last Conservative government.