Half of workers in the UK experienced a real-terms pay cut last year, new research suggests.
That’s despite official data indicating the fastest pay growth in nearly two decades. Average weekly earnings growth reached 4.5% in late 2020 – its highest level since 2002.
This level of pay growth feels too good to be true, says the Resolution Foundation, and on closer examination it is too good to be true.
The data is distorted by the effects of the UK government’s furlough scheme, people in higher-paid roles earning more, and lower-paid workers falling out of the workforce through job losses.
According to the Resolution Foundation, the median pay rise was just 0.6% in the third quarter – a real-terms pay fall of 0.2% – meaning that at least half of all workers experienced a pay cut. The median pay rise increased to 1.8% in the fourth quarter (1% in real terms), which is an improvement but still the second lowest since mid-2013.
The figures also showed that younger workers experienced the biggest deterioration in annual pay growth. Coming at such a crucial early stage of their careers, this could potentially have a long-term impact on their pay prospects.
Commenting on the findings, Hannah Slaughter, economist at the Resolution Foundation, said: “The economy experienced its biggest recession in over 300 years last year, with a third of private sector workers put on furlough at its peak. And yet somewhat implausibly, pay growth reached its highest level in almost 20 years.
“Sadly, the story of bumper pay packets from official headline data is too good to be true. In reality, half of all workers experienced a real-terms pay cut last autumn, with pay growth deteriorating most among those who have been hit hardest by the pandemic – the young, the low-paid, and those working in social sectors like hospitality.
“This pay deterioration is particularly concerning for young workers as it risks scarring their pay for many years to come. The government should therefore prioritise getting young people’s pay and careers back on track during the recovery, and that is likely to require further policy action beyond that announced in the Budget.”