Rich world incomes to be squeezed for a decade


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The Independent Online

Households in the developed world have yet to experience the full economic impact of the slump that began in 2008, a study suggests.

Academics at the London School of Economics, led by Professor Stephen Jenkins, found that wealthy nations, including the UK, have been able to safeguard average household incomes during the downturn with the help of benefit payments.

But Government public spending cuts and tax rises over the coming years will lead to a steady squeeze on incomes, lasting between five and 10 years, depending on the strength of economic growth, the LSE study forecasts. It also argues that the pain of adjustment will be much less for families in countries that have relatively healthy public finances, such as Sweden and Germany.

Professor Jenkins said: "We were surprised at how little household incomes changed in the years immediately after the Great Recession began... The prospects for the medium and longer term are, however, much more worrying." The study found that average earnings actually increased between 2007 and 2009, although this was attributable to the fact that lower-paid workers were more likely to lose their jobs than higher-paid employees.

The incomes of elderly people have also been relatively well protected throughout the developed world. The LSE report, entitled The Effect Of The Great Recession On The Household Income Distribution, examines 21 countries from the OECD.