Labour market: working people are still paying the price for austerity

Many have argued that employment gains somehow compensate for earnings losses, but this is false


As the Office for National Statistics (ONS) puts it, today’s employment figures ‘maintain the general direction of movement since late 2011/early 2012’. Employment is up by a robust 250,000 on the quarter, and unemployment is down by 76,000. They don’t say it, but so do earnings ‘maintain the general direction’: growth remains very weak, at 1.7 per cent for headline pay and 1.8 excluding bonuses.

So while the prime minister today is seeking to make political capital from a rise of 2 million in employment across the parliament, workers have endured the most severe fall in earnings in history.

Many have argued that the employment gains somehow compensate for earnings losses, but this is false. This can be easily verified by looking at an indicator of wages and salaries growth as a whole, which can be proxied by employment growth plus earnings growth.*

Wages and salaries growth, per cent

earnings graph

While employment growth (the maroon bit) in 2014 was the strongest (since the late 1990s in fact), earnings growth in 2014 was the weakest over the period shown, apart from 2009 at the depths of the recession. As a whole, wages and salaries growth of 2.7 per cent in 2014 was only marginally up on 2013, but lower than 2011.

Critically wages and salaries growth in 2014 was lower than every single year before the crisis; average wages and salary growth since 2010 has been 2.4 per cent, less than half average pre-crisis growth of 5.1 per cent.

The standard excuses that ‘nobody said this would be easy’ or ‘had to take hard choices’ are refuted decisively by the OBR forecast. The expectation was that by 2014 wages and salaries would be restored to 5.4 per cent growth, double the actual outcome. (I leave aside the severe deterioration in the quality of work over the course of the Parliament.)

The standard approach to look at individual experience is through measures such as real household disposable income per head, which adjust for prices, population and other sources of income such as tax credits and benefits. These show that on an individual level incomes have remained at best static over the whole parliament, normal experience is for incomes to grow by over ten per cent in a five year period.

TUC research shows that the reduced growth in wages and salaries is a direct consequence of the reduced growth in the economy that has, in turn, resulted from austerity policies. Through its deliberate actions the government has reduced total spending in the economy, and this has led to reduced economic growth.

The final excuse, then, is that this misery has been ‘necessary’ and ‘worth it’ to get the public finances back in order.

But the public finances are not back in order. The government is on course to borrow around £90 billion in the financial year just ended, a world apart from the planned borrowing of £37 billion. Reduced government spending has led to reduced labour income which has meant greatly reduced income tax revenues. Through this process workers pay the heavy price for austerity that is self-defeating.

On the present plans for spending, as set out by the Office for Budgetary Responsibility, cuts in the next parliament will be more severe than the one that has just ended.

This government and its policies have been the enemy of working people. Their policies have failed. Whichever the government after the election, these policies must be reversed.

Geoff Tily is a senior economist at the TUC

* I have derived these from annual estimates of growth in the number of employees and the average weekly earnings, total pay; the figures therefore exclude self-employment, but here the behaviour is like that of employees but in an amplified way, with even higher gains in jobs offset by even larger falls in earnings. Note that this calculation only approximates the actual national accounts aggregate measure of wages and salaries, which is based on HMRC tax information, though ONS figures for recent years are based on a similar approach to that used here.

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24 Responses to “Labour market: working people are still paying the price for austerity”

  1. Leon Wolfeson

    I agree.

    Also, the Office of Budgetary Fiddling is a clear waste of cash and should be abolished. Their projections have repeatedly been shown to be no more than politically-ordered fantasies. There are cheaper ways to produce those – I suggest a Tory MP, a crayon and a sheet of paper.

  2. David Davies

    If this were the truth, why are the Treasury’s coffers not bulging with cash?

    IF ZHC are so fantastic, why are MPs not on them? No show = No dough.


    There has been zero improvement of the situation, only more and more fiddling of statistics.
    Now no-one under 40 counts as unemployed, because we automatically go straight onto the ‘work programme’ which is just forced slave labour, which only benefits the same corporations that pay no taxes or employees because our government has sold-out our citizens to these corporate giants, who we are all slaves to!

  4. treborc1

    Or a labour Progress one, they are pretty much the same.

  5. treborc1

    paying off the deficit it must be surely.

  6. littleoddsandpieces

    Universal Credit will hit people in work, bringing about permanent sanctions.

    Privatisation has cut wages.

    The Lower Earnings Level below which do not get automatic National Insurance credits, means huge numbers of men and women are out of the welfare state and will never get a state pension.

    Within this low waged economy is the salary sacrifice system, the return of the 19th Truck System, that drags people below the LEL.

    The state pension is payable if can remain in work or suffer austerity job cuts.

    Half of the over 60s are within the working poor.

    Millions are reliant only on the state pension for pension provision.

    On and from 6 April 2016 huge numbers wil find they have


    see why at end of my petition, in my WHY IS THIS IMPORTANT at:

    Please share this petition in your Twitter and Facebook pages, as much as telling women especially that they have no pension provision in old age.

  7. sarntcrip

    if there are record numbers in work there would be record tax receipts,thus no need to bully the sick and disabled

  8. TN

    Written by the TUC….about as credible as a cat on an Olympic swimming team. Leftie job snobs and benefit scrounger apologists.

  9. Godfrey Paul

    Unemployment levels are now back to the level before the Brown Crash.

  10. JoeDM

    Half of all the jobs created have gone to immigrants. That’s the real problem.

  11. steroflex

    You can’t have it both ways, the national debt has doubled under this government – there has therefore been no real austerity in, say, the Greek sense.
    Secondly, I should like the figures for married mothers who take up a part-time job even on zero hours, as against those who (male or female) have to support a family.

  12. Guest

    Keep attacking those evil, evil British workers. How dare they!

  13. Leon Wolfeson

    Hours worked, however, are far lower per-person. And wages are down.

  14. Guest

    Complete nonsense, of course. People by your measure got hundreds of percentages of jobs – there is, quite simply, turnover of jobs. They don’t come into existence once.

    That you see trade and business as a problem…

  15. Leon Wolfeson

    Keep frantically denying austerity, which is very expensive.

    Greece’s productive economy has been slashed by around a third by austerity. The only thing which has saved us from that, and lead to a smaller fall is automatic stablisers – the ones which both main parties have committed to neutralising.


    Figures are really needed I have to. say. It does make sense to people that have to get out of bed and go to work.

  17. Leon Wolfeson

    The figures exist. As you support lower wages, that it makes “sense” to have ever more punishments after your policies destroyed so many jobs…

    What makes sense is ending most poverty with i.e. a basic income, allowing people to get better jobs and start their own businesses.

  18. sarntcrip

    if the job figures are true where is the accompanying tax receipt bonanza lies lies and more tory lies

  19. sarntcrip

    you mean the tory banker financial crisis

  20. sarntcrip

    productivity is down too

  21. Leon Wolfeson

    Yes, let’s not forget that. In good part because people are being pushed to do more hours, rather than more staff being hired, which is a rapidly unproductive game.

  22. Mary Ann

    Anyone with a modicum of intelligence knows the crash started in the US and was caused by un-regulated lending, a tory policy.

  23. Robert

    The working class has, I know sorry only working people count these days.

  24. Robert

    yes but it’s nice and make politician feel good.

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