With all that wonderful news about the better than expected economic growth, the OBR’s forecast for wages got a bit lost. The folk at the Resolution Foundation spotted it, though, and put it on these handy graphs.
While the OBR’s growth projections were more optimistic than those it came up with in March, its forecast for pay got worse. The OBR doesn’t think average earnings will get back to pre-recession level until sometime in 2017. When you take housing costs into account (the RPI adjusted figure) it’s sometime never. For those on or below the median wage, the situation is even worse. Their pay is forecast to continue falling in real terms for the rest of this decade. There was a lot of excitement (and some bewilderment) last week when the ASHE figures showed that median earnings hadn’t fallen as much as people thought it would. That says a lot about the situation. The median wage only just failing to keep up with inflation is seen as cause for celebration.
Last week, the Joseph Rowntree Foundation published a report which painted a similarly gloomy picture. Among its many findings were these.
Earnings have fallen across all income groups but the poorest workers have been hit the hardest. Perhaps it’s not surprising, then, that the majority of those households with less than 60 percent of the median income have some family members in work.
At the same time, the proportion of workless households in Britain has fallen to an all-time low.
Among those households below the official poverty line, the working poor now outnumber the unemployed, retired and sick put together.
But low-paid jobs still leave people dependent on benefits. In a report published last week, the National Housing Federation said that an extra 310 working people a day are claiming housing benefit. Working claimants have been responsible for most of the increase in housing benefit costs since 2009. Much has been written about people not being able to buy their own homes but a lot of them, now, can not afford to rent either.
The picture emerging, then, is not one of the poor being unemployed or ‘on the sick’. An increasing proportion of them are working yet still in need of benefits to get by. And ministers wonder why the welfare bill won’t come down.
This chart from the Resolution Foundation’s James Plunkett gives some of the background to all this. It maps wages against GDP and shows the divergence between mean and median wages over time.
The ONS Labour Force Survey definition of total compensation includes pensions and employers’ NI contributions. These appear to have kept pace with GDP which suggests that, for those still getting them, employer pensions are holding up pretty well. (There’s more detail on page 15 of this report and in this piece from Ben Chu.) From the end of the 80s, the mean and median wage growth began to fall behind GDP growth and both began to diverge from each other. This suggests that some high earners are pulling up the level of the mean wage. The median wage seems to have become disconnected from the GDP line. After keeping pace with economic growth until the end of the 1980s, the median wage grew at a much slower rate.
The projections from the OBR suggest that this trend will continue. So, although economic growth is forecast for the rest of this decade, it looks as though those at the median wage or below won’t see much of it.
What is behind the rise of the working poor? As James Plunkett says, it makes for a lousy whodunit. No single factor is to blame. Much as you might want to point the finger at the government, at least some of the evidence shows that these are long-term trends that have been gathering pace for a while. The recession and the stagnation which followed simply gave them a boost. In-work poverty started increasing before the recession and it looks as though it will continue long into the recovery.
It seems that our economy and, to be fair, those of a number of other western countries, can no longer create enough jobs that pay well enough to keep people off benefits. The stereotype of the work-shy dole scrounger is out of date. These days, someone poor and on benefits is more likely to come from one of those hardworking families the government keeps telling us about.