Real wages growing at fastest rate since November 2007 but average earnings still £30 a week below pre-crisis peak

Rising nominal pay and zero inflation have pushed real wage growth to its highest level since November 2007, but questions remain as to whether this can be maintained once inflation starts to pick up, the Resolution Foundation said today (Wednesday) in response to the latest ONS labour market figures.

Real wage growth increased to 2.1 per cent in the three months to March 2015 – its highest level since November 2007 (and highest in nominal terms since June 2011). Wage growth has been particularly strong in parts of the private sector (2.7 per cent), with real pay rising by 3.1 per cent in retail and hospitality.

However, seven years of falling real pay mean that average earnings remain around £30 a week below their pre-crisis peak, and roughly £100 a week lower than they might have been in the absence the downturn.

The scale and nature of recent employment growth has also been impressive, says the Foundation, with 97 per cent of growth over the last year accounted for by full-time employees. The recent recovery in full-time jobs marks a reversal of the sharp fall a few years ago, with the number of full-time employees now back above pre-crash levels.

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

“After a seven year squeeze it’s encouraging to see real wage growth at its strongest level in almost a decade, even if this is overwhelmingly due to historically low inflation.

“Indeed with unemployment continuing to fall, one of the big puzzles in our labour market is why wages aren’t growing even faster.

“Britain’s pay recovery now looks on surer footing, if somewhat weaker than many expected. But the fact that average earnings remain £30 below their pre-crisis peak, and around £100 a week below where they would have been if trend growth had continued uninterrupted, illustrates just how much ground has been lost during the recent pay squeeze.

“Workers will want to use this window of low inflation to make up some of the lost ground on wages. But the longer-term challenge – arguably the key one facing the new government – is encouraging productivity gains to ensure that the current level of real wage growth holds as inflation returns to normal.”

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