Employee earnings fall for a third decade

Shrinking wages mean that UK workers are taking home £60 billion less, in today's relative value, than workers 30 years ago.

The figures come as part of a report published by the Trade Union Congress (TUC), titled 'All in This Together', which blamed the 2008 recession and the weak economy for squeezing salaries.

According to the report, the total UK wage bill, which represented 58 per cent of GDP in 1978, has been falling steadily over the last three decades, and now sits at 53.8 per cent in 2011. The drop means that earnings of £20,000 today would equate to £31,300 if the wage-output ratio had remained the same as it was in 1978 - a pay rise of more than 50 per cent.

Earnings were most affected during the recession, when the average wage increase of 4.2 per cent in 2007 dropped to 1.7 per cent in 2009, failing to beat the RPI rate of inflation - the most commonly used measure in setting pay. In fact, the TUC's statistics reveal that 99 per cent of salaries in September 2011 were well below the UK's RPI.

With no indications of rebounding to a pre-recession level, the Office for Budget Responsibility (OBR) has predicted that the wage-output ratio will drop even further by 2016. This coincides with the TUC report which suggests that the current and future decrease in wages will be most acutely felt by those on low and middle incomes, whose living standards could be affected.

The TUC report found that the salaries of the poorest fifth of workers last year suffered the most and were 43 per cent lower than compared with 1978, whilst middle incomes where similarly affected by a 36 per cent wage loss. High earners experienced an average wage loss of just 6 per cent such whilst top executives were the only group to weather the recession by receiving median pay increases of 17 per cent in 2011.

The TUC now wants the issue of lost earnings and the increasing wage gap to form a bigger part of the Government's economic strategy.

Brendan Barber, TUC general secretary, said: "The tens of billions of pounds that workers miss out on each year has been papered over by rising credit card bills and a housing boom, but the financial crash has brought home the reality of our shrinking wage pool to millions of workers and their families.

"Wage-led growth, based on greater collective bargaining, better skilled workers, better corporate governance and a broader base of well-paid jobs, is the only way to generate a sustainable economic recovery that everyone benefits from."