Double blow of falling wages and high unemployment reveals weakness of youth labour market

The pay of workers in their 20s has tumbled by almost 12 per cent since the peak of the recession in 2009, part of an almost unprecedented squeeze on both the wages and employment chances of young adults.

New analysis of official wage data carried out by independent think-tank the Resolution Foundation lays bare the extent to which the downturn has pummelled younger workers harder than other age groups. It shows that the average (median) hourly pay for all workers aged between 22 and 29 is £9.83, compared to £12.56 in 2009 (at today’s prices) – a fall of 11.7 per cent in just three years.

The sharp decline has come at the same time as unemployment increased by nearly 12 per cent for those aged 18-24 and by an even starker 16 per cent for those aged 16 and 17 (although over 25s fared better with an increase of just 2.6 per cent). Taken together, the two trends raise alarm that the proceeds of economic growth may not be broadly shared.

The plight of young people has moved further up the political agenda in recent months with all the main political parties thought to be considering specific policies around youth employment, pay and training. Next week’s Autumn Statement may increase attention on these issues.

Falling wages

The Resolution Foundation has examined median hourly wages by age group from 2002 to 2012, adjusted for inflation using the RPIJ measure.

It shows that:

· Among workers of all ages, median hourly pay fell by 8.1 per cent between 2009 and 2012 – and was only 0.6 per cent higher than it was in 2002

· The fall was most marked among employees aged 22-29. Wages for these workers dropped by 11.7% relative to 2009 and by 9.4% relative to 2002

· Men were hit harder than women overall and across most of the younger age groups. For all men, median pay fell by 9.3% between 2009 and 2012, compared with a reduction of 6.6% among women. Among those aged 22-29 the drops were 12.6% and 10.5% respectively

· Although part-time workers generally fared worse than full-time workers (wages falling 8.1% and 7.2% respectively between 2009 and 2012), among the 22-29 age group, it was full-time workers who recorded the biggest decline (10.7% compared with 9% for part-time employees).

· Median pay fell by 11.6% among men aged 22-29 between 2002 and 2012. This compares with an increase of 14.2% for females aged 30-39

Rates of unemployment

The effects of falls in pay also have to be seen against the background of a labour market which has strengthened, but not (in general) for younger workers.

Official employment figures from the ONS show that:

· Unemployment is highest among the young, standing at 36.2% among 16-17 year olds, 19.1% among 18-24 year olds and 7% among 25-34 year olds

· Between 2009 and 2012, it increased most among young (up 11.6% among 18-24 year olds) and older (up 6.5% among those aged 50+) groups

· Women have been more affected than women, with male unemployment down 6.2% between 2009 and 2012 and female unemployment up 21%. Men (8%) were still more likely than women (7.2%) to be unemployed as at August 2013 though

In a report this week the OECD warned that high youth unemployment would do severe harm to many people’s lifetime earnings, putting their ability to secure a decent retirement income at risk.

Matthew Whittaker, senior economist for the Resolution Foundation, said: “Economic downturn has been tough for almost everyone but younger people have been hit harder, and from more than one direction. Wages have been falling steadily for almost everyone but, on top of this, younger people have not benefitted from a partial recovery in the jobs market.

“It’s worrying if economic recovery is not to be fully shared among the population. As it stands, young people are at risk of being left out.”

Note – changes are expressed in proportional terms rather than percentage point differences