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Underpaid and underworked: Real legacy of recession is falling wages and productivity

Workers settling for less just to stay in a job, survey claims

Britain is experiencing the lowest productivity levels ever recorded in a recession – despite more people staying in work and enduring lower wages, a new study claims today.

The Institute of Fiscal Studies report dispels the idea that the recession has led to soaring unemployment. Instead, it suggests, productivity is suffering as workers endure sharp wage cuts just to stay in a job. According to the data, one-third of workers have suffered a wage cut or freeze in the recession.

The think tank’s study, which examined data from 90,000 companies, found productivity levels fell most significantly among firms with less than 50 employees. It also suggests that competition for jobs has sharpened because single parents and older workers have not withdrawn from the job market as in previous downturns.

Claire Crawford, of the IFS, said: “The falls in nominal wages during this recession are unprecedented, and seem to provide at least a partial explanation for why unemployment has risen less, and productivity has fallen more, than might otherwise have been expected."

The paper also said that fewer workers are unionised than in the past and those who are not protected by collective wage agreements are more likely to have seen their pay cut or frozen.

The research found that since 2008 the UK has seen “the longest and deepest loss of output in a century” but the downturn is different from previous slumps. Also, younger generations have been hit much harder than older workers and consumers. 

Ms Crawford added: “To the extent that it is better for individuals to stay in work, albeit with lower wages, than to become unemployed, the long-term consequences of this recession in terms of labour-market performance may be less severe than after the high-unemployment recessions of the 1980s and 1990s.”

The findings will embolden advocates for the Living Wage which was introduced in 2005.

A Treasury spokesman said: “The UK is recovering from the ‘longest and deepest’ recession in a century. Despite this, the labour market has remained strong: 1.25 million private-sector jobs have been created and more people are in private-sector employment than ever.

“The Government understands the pressures that households face with the cost of living and has taken action to help including increasing the personal allowance, taking 2.7 million people out of income tax altogether, and saving a typical taxpayer more than £700, and freezing fuel duty for nearly three-and-a-half years.”