Cost-of-living crisis is hitting pay packets but not jobs as some older workers return to work

The inflation-led cost-of-living crisis is causing a huge fall in the value of real wages, but has not yet hit the jobs market as older workers in particular are returning to work in the face of rising cost pressures, the Resolution Foundation said today (Tuesday) in response to the latest ONS labour market statistics.

The latest data lays bare the scale of Britain’s real wage crisis, which will get considerably deeper in the months ahead.

Regular nominal wages are growing at a healthy rate of 4.3 per cent, and total private sector wages are growing at 7.3 per cent, its highest rate outside of the pandemic since 2007. However, high inflation means that average real regular pay fell by 2.8 per cent in the three months to May – the sharpest fall in real wages since records began in the early 2000s.

More recent payroll data for June showed that nominal wage growth has picked up slightly, though the Foundation notes that this is likely to be dwarfed by rising inflation pressures, with petrol hitting £2 a litre in the same month.

The jobs market however appears to be holding firm in the latest economic crisis, with unemployment holding steady at close to a record low at 3.8 per cent, and falling economic inactivity helping to drive a rise in employment.

The Foundation notes that most of the recent fall in inactivity is among workers aged 50+ returning to work – accounting for the majority (130,000) of the recent 225,000 fall in inactivity over the quarter.

With over a million job vacancies there is still scope for more people to return to the labour market.

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“People are feeling the effects of the cost-of-living crisis in their pay packets rather than their job security. Despite healthy wage growth in the private sector, near double digit inflation means that their real-terms value is falling at a record rate.

“But while everyone is experiencing pay packet pain, the jobs market at least remains resilient with unemployment close to a record low, inactivity falling and employment rising.

“There are also signs of some older workers returning to the workforce. The big question is whether this pattern will continue to hold in the though months ahead.”