Decline in average UK wages may be worse than first thought

10th July 2014

New research suggests that average wages in the UK may have declined more than official figures show, according to a leading think-tank.
The drop in wages could be 20 per cent greater than currently estimated across the entire workforce as the UK’s 4.5 million self-employed people were not included in initial pay figures, said the Resolution Foundation.
A record 30.5 million Britons are now working – including the steadily increasing number of people who register as self-employed – who tend to earn less than employees.

The think-tank believes wage levels were underestimated in the immediate aftermath of the global recession as self-employed people maintained healthier incomes than employees on average.
However, once the recession was underway and newly unemployed workers switched to self-employment – often to take on part-time roles – average wages declined considerably.
A real-terms fall of 10 per cent in average wages in 2008 would therefore increase to more than 12 per cent if a 27 per cent drop in self-employed incomes is taken into account.
Conversely, the data also risk understating any upturn in earnings as the economic recovery begins to gather pace.
Laura Gardiner, senior analyst at the Research Foundation, said: “Our analysis suggests that at different times we may have both overstated and understated, often significantly, how much workers have been earning.
“It should be possible to construct a more comprehensive and timely way of measuring wages across the workforce and we hope to provoke a much-needed debate about how best to do this.”
Meanwhile, officials on the Bank of England’s monetary policy committee, which sets interest rates, are also understood to be concerned about the exclusion of self-employed incomes from official figures, hampering their efforts to gauge when to increase the cost of credit.
“What we know about earnings is central to our understanding of the recovery and the timing of interest rate rises so it’s crucial that we equip ourselves with the best possible wage measure,” added Gardiner.

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