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.

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.