The wage squeeze

The OBR’s latest projections for average earnings and inflation suggest that the wage squeeze will look worse over the next few years than previously feared: wages will fall further relative to prices and recover more slowly. Our analysis of the OBR figures shows that the situation is even starker for the ‘typical’ worker – those on a median salary.

Median pay has consistently grown more slowly than the average over the past 15 years. Applying the same ratios to the OBR projections imply that median pay is set to fall across the entirety of the current forecast period. So, while typical workers earned £24,800 a year in 2009, by 2015 the median salary will stand at just below £21,600 (adjusted into 2013 prices using the Retail Prices Index measure of inflation). Prior to today’s new OBR data, the projection for 2017 stood at £21,800. Today’s gloomier projections therefore see the ‘wage gap’ (the difference from the pre-recession peak) increasing from £3,000 in 2017 to £3,200. Using the (lower) Consumer Prices Index (CPI) measure of inflation the trend looks slightly less marked, but still significant. On this measure, median earnings are set to fall from a peak of £24,300 in 2008 to a low of £22,300 in 2016: a wage gap of £2,000.

The growing wage gap: median salaries 1999 – 2017

Notes: Outturn data from ONS, Annual Survey of Hours and Earnings Projections are calculated with reference to OBR projections for average earnings. For each point in the earnings distribution, the OBR projection is adjusted to reflect how closely wage growth has tracked average earnings in the period 1999-2011.

Sources: Resolution Foundation analysis of ONS, ASHE, Quarterly National Accounts, Labour Force Survey; and OBR, Fiscal and economic outlook