Pay squeeze tightens sharply despite low unemployment

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Real earnings growth falls to lowest level outside of the great pay squeeze in nearly 40 years

Real pay growth dropped to its lowest level outside the great pay squeeze that followed the financial crisis in nearly 40 years, despite unemployment remaining at its lowest level since 1975, the Resolution Foundation said today in response to the latest labour market figures.

Real average earnings growth fell to -0.6 per cent in the three months to April – its lowest level since August 2014 and outside of the recent pay squeeze since 1978. Real pay in the private sector fell by -0.4 per cent, and by -1.3 per cent in the public sector.

The Foundation notes that while pay is falling across the economy as a whole, it is still growing in low-paying sectors like retail (+0.3%), admin and support services (+0.9%) and other service industries including hairdressing (+1.4%), which reflect the latest rise in the National Living Wage.

In contrast to the terrible news on pay, the jobs market continues to perform strongly. Unemployment remained at 4.6 per cent, while employment remained at a record high.

The Foundation notes that the tightening labour market is not delivering the increased pay pressure that many expected. However, there are signs it is raising the quality of work available. Full-time employee jobs account for 97 per cent of net job creation in the last 12 months, and agency work and zero hours contracts fell slightly as a share of the total workforce in recent months.

Stephen Clarke, Economic Analyst at the Resolution Foundation, said:

“Britain is in the middle of a pay squeeze that is far deeper than anyone expected. What’s most concerning is that while inflation continues to rise, wage growth is actually weakening and making the household income squeeze even tighter.

“The terrible news on pay comes despite another strong jobs performance, with unemployment remaining at its lowest level in over 40 years.

“The sharp contrast between our terrible record on pay and strong jobs performance shows that the currency-driven inflation we are experiencing is not feeding through into wage pressures and is simply making us all poorer instead.”

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