Declining living standards pre-date the recession and threaten the recovery

Average UK living standards are in their first prolonged decline since the late 1920s. Most attribute this to the recession, but its roots go back a lot further.

Graduate students

Stewart Lansley is the author of Britain’s Livelihood Crisis, a TUC Touchstone Pamphlet

Average living standards in the UK economy are now in the grip of their first prolonged decline since the late 1920s. Most commentators have attributed this trend to the recession. In fact its roots go back a lot further. Wages for most of the workforce have been falling behind increases in wider prosperity since the early 1980s and at an accelerating rate.

First, the share of economic output taken in the form of wages has been shrinking, from a high of 65 per cent in the mid-1970s to 53 per cent in 2008.

Secondly, the distribution of earnings has become increasingly unequal. While the UK economy has doubled in size over the last thirty years, the bottom fifth of earners have enjoyed real pay rises of only a quarter, and those on middle incomes of little more than a half.

Some unskilled and semi-skilled jobs now pay little more in real terms – and in some cases less – than they did in the late 1970s. According to a new report, Britain’s Livelihood Crisis (pdf), published today by the TUC, the real wages of a wide range of professionals from medics to lawyers, more than doubled over the thirty years.

In contrast, those of a group of relatively unskilled and semi-skilled workers, including bakers, forklift truck drivers, packers and bottlers actually fell in real terms. As a result, despite the implementation of the minimum wage, the proportion working on low pay has almost doubled from 12% in 1977 to over 22% today. This 30-year long squeeze has, together with the spread of unemployment, greatly undermined the promise of an aspirational culture much promoted across the political spectrum.

The TUC report calculates that up to a third of those of working age are facing a deepening ‘livelihood crisis’, one which has brought weakening job opportunities, low living standards and a range of new economic uncertainties compared with the immediate post-war decades. Not only do many of those caught in this crisis have little or no prospect of escape, but also their children are likely to face an even more uncertain economic future.

For a significant and growing minority, the post-war era of upward absolute social and economic mobility for all has been petering out. Rising numbers face poorer opportunities and lower living standards than their parents, while the level of skills under-utilisation – with many unable to find work appropriate for their skills and experience – has been increasing.

Far from creating a much vaunted meritocracy, economic and social opportunities for a significant minority have been capped. Even before the financial crisis, up to a third of graduates ended up in permanent non-graduate jobs while those vulnerable to such downward mobility include professionals as well as the skilled and semi-skilled working class.

There are scores of examples across the country of former IT specialists working as airport baggage handlers, ex-miners and skilled joiners cleaning cars, upholsterers turning to taxi driving.

The long squeeze has also been highly damaging for the economy. It was the shrinking wage share that drove Britain to the top of the league table for personal household debt among the Group of Seven (G7) leading economies. In 2007, the ratio of debt to disposable income represented an unsustainable three-and-a-half fold increase over 1981.

The spread of low pay has also been the key cause of the doubling of poverty levels in the last thirty years and the rise in the numbers of ‘near-poor’ – those living precariously on the margins of poverty. To merely hold the line on poverty amongst those in work, the last three Labour governments had to greatly increase spending on income support.

All these trends pre-date the recession. It is those on low and middle incomes that have paid the greatest price for the market experiment of the last 30 years. That experiment has transformed Britain from a high wage, low debt and relatively equal society into a low wage, high debt and deeply unequal nation, a process that itself helped drive the domestic and global economy over the cliff in 2008.

Today that model remains largely intact. As a result, the wage share is set to continue to shrink and absolute mobility continue to fall while the recovery, when it comes, is likely to prove very fragile indeed.

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