The UK has been going through its deepest recession since World War II, a report by the Institute for Fiscal Studies claims. Workers experienced unprecedented pay cuts of 6 per cent over the last five years since the Global Financial Crisis began in 2008.
Between 2010 and 2011, 70 per cent of employees who stayed in the
same job fronted real wage cuts, while a third of those workers
faced nominal wage freezes or cuts (12 per cent experienced
freezes and 21 per cent experienced cuts).
The last time that such a high proportion of workers faced real
wage cuts was between 1976 and 1977, when inflation exceeded 15
per cent. The proportions of nominal wage freezes and cuts are
said to be the highest since the series of wage cuts began in the
mid-1970s, according to the Institute for Fiscal Studies latest
report.
The period since the recession began in 2008 has seen the longest
and deepest loss of output in a century. Real wages have fallen
by more than in any comparable five-year period; productivity
levels have dropped to an unprecedented degree, the British think
tank revealed.
Average real hourly wages amongst workers who stayed in the same
job have fallen faster in the private sector than in the public
sector over the last few years, such that the public-private
sector wage gap has increased substantially over this period.
Among the main reasons why workers have experienced nominal wage
freezes or cuts during this recession compared to previous ones
is because the labor market is more flexible than it was in the
1980s or 1990s. There has been a dramatic decline in trade union
membership over the last 30 years, from a peak of some 13 million
members (37 per cent of the working age population) in the early
1980s to around 7.5 million (19 per cent) in 2008. This decline
has been accompanied by a reduction in the proportion of
employees covered by collective bargaining, which appears to have
made it easier for employers to hold constant, or reduce,
insiders’ wages.
“The falls in nominal wages that workers have experienced
during this recession are unprecedented, and seem to provide at
least a partial explanation for why unemployment has risen less —
and productivity has fallen more — than might otherwise have been
expected. To the extent that it is better for individuals to stay
in work, albeit with lower wages, than to become unemployed, the
long-term consequences of this recession in terms of labor market
performance may be less severe than following the high
unemployment recessions of the 1980s and 1990s,” Program
Director at IFS and Managing Editor of Fiscal Studies Claire
Crawford explained.
Meanwhile, half a million people in the UK have been resorting to
food banks because of squeezes on benefits, wage cuts and the
continuing economic downturn, with numbers trebling over the past
year, a joint report by Oxfam and Church Action on Poverty
revealed last month.
“The shocking reality is that hundreds of thousands of
people in the UK are turning to food aid. Cuts to social
safety-nets have gone too far, leading to destitution, hardship
and hunger on a large scale. It is unacceptable this is
happening in the seventh wealthiest nation on earth,” Chief
Executive of Oxfam Mark Goldring was quoted as saying.
With wages and productivity falling down, poorer households are
the hardest hit by the benefit cuts being implemented in the
years to 2015—16, according to the IFS experts.
“Much of the pain for lower-income groups is occurring now
or is still to come, because these groups are the most affected
by the ongoing cuts to benefits and tax credits. Overall, we
expect the period of recession followed by austerity to leave
income inequality in 2015—16 about the same, or slightly lower,
than in 2007—08,” a Senior Research Economist at IFS Robert
Joyce predicted.
Britain has been much slower to recover from the global
financial crisis than most large economies, such as the US,
Canada, and Germany who have all managed to go back to their
pre-recession economic levels.
According to the National Institute of Economic and Social
Research, the UK’s longest peacetime economic slump since 1920
has been plagued by high inflation, weak eurozone demand, and
austerity measures.
Britain’s economy re-entered recession in 2012, the first
double-dip recession since 1975. The slowdown prompted the
government to pump 200 pounds of new capital into the economy
through ‘quantitative easing’, an unprecedented measure by the
Finance Ministry.
National currency also suffered a knockout during the
recession. Over the past 30 years the British pound’s value has
fallen by almost two thirds, according to a survey by Lloyds
TSB Private Banking.
UK unemployment rose to 2.56 million in April, the Office for
National Statistics revealed, while 70,000 people lost their
jobs and ‘went on the dole’ between December and February 2013.
This article originally appeared on: RT