Employment at record high but return to pre-crash pay packets still a long way off

Finance sector closest to returning to pre-crash earnings, construction furthest away

A welcome return to falling unemployment is creating upward pressure on wages but, after an unprecedented six-year squeeze, average earnings remain a long way off their pre-crash peak, the Resolution Foundation said today (Wednesday) in response to the latest labour market statistics.

The employment rate among 16-64 year olds has reached a record high at 73.6 per cent, while unemployment fell to 5.4 per cent. The Foundation notes there is considerable variation across the UK, with employment in 5 of its 12 nations and regions still below pre-downturn levels. Northern Ireland and the South East are the furthest from their pre-recession health, while employment in London has grown the fastest since the downturn.

Falling unemployment is creating upward pressure on wages. Recent pay growth has been particularly strong in the retail sector, though average earnings remain 3.2 per cent below their pre-crisis level. Pay levels are closest to their April 2008 levels in finance – but even here they remain 2.4 per cent down. Average wages in the public sector are 4.2 per cent lower than before the crisis, while in construction the gap is 8.4 per cent.

Despite this welcome mini pay surge the Foundation does not expect average earnings to return to their pre-crash peak much before the end of the decade – with employees experiencing more than a decade of lost pay growth.

Matthew Whittaker, Chief Economist at the Resolution Foundation, said:

“It’s encouraging to see unemployment falling again, after a pause earlier this year. But there is significant variation in the extent to which this jobs revival has been shared across the country. Many parts of the UK remain a long way short of their pre-recession levels.”

“Private sector employees are enjoying a mini pay surge that is helping to narrow the substantial wage gap that opened up after 2008. However, maintaining this momentum will prove much harder once inflation starts heading back towards its target rate next year.

“As recovery builds, attention will turn to who is benefiting from it. The strong recent performance of wages in the low-paying retail sector is encouraging, but the picture is much less promising in manufacturing and construction. Meanwhile, ongoing pay constraint in the public sector is likely to translate into increasing recruitment and retention difficulties in the coming months.”