U.K.'s Billion-Pound Post-Crisis Pay Squeeze Saved 800,000 Jobs
(Bloomberg) -- The U.K.’s painful pay squeeze in the aftermath of the financial crisis helped save 800,000 jobs, according to new research.
A report by the Resolution Foundation showed that real average earnings in the U.K. fell by about 7 percent between 2009 and 2014, the equivalent of a 1 billion-pound ($1.3 billion) weekly wage loss.
Still, that pain saved the nation from the dramatic jump in unemployment that was seen in some other European nations in the period. Resolution said the more than one million jobs lost after the crisis would have almost doubled.
Companies were able to take that path because of the jump in inflation that followed the pound’s fall in the wake of the financial crisis. That allowed them to adjust by granting low nominal pay gains, rather than cutting jobs -- a pattern that also played out after 2016’s Brexit vote, when real wages again came under pressure but unemployment continued to drop.
While the pay squeeze meant the pain of the crisis was shared more equally, lawmakers “shouldn’t assume workers will all be in it together when the next recession comes,” said Stephen Clarke, Senior Economic Analyst at Resolution. “There’s a good chance instead of more modest pay falls and bigger increases in unemployment. This kind of recession will require a different kind of response from policy makers.”
Resolution estimates that, without the inflation shock after the crisis, the U.K.’s pay squeeze would have been far more modest, and among the lowest in Europe rather than the second largest. However, it would also have seen the unemployment rate increase by 5.1 percentage points, rather than the 2.7 percentage points.
The post-crisis pinch hurt professional occupations such as software developers, engineers and teachers the most, according to Resolution. The burden also fell more on the young, with those aged between 22 and 29 seeing pay fall by 11 percent, compared with more modest losses for older workers.
The impact of decisions made in the period have proved far-reaching. While workers are finally seeing some gains again, real wages remain lower than before the crisis.
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