Young workers suffer the deepest pay cuts

The research shows that the wages of under-30s have dropped by more than 10 per cent

Young people are suffering from a "wages crisis" as well as a jobs crisis, according to research showing the under-30s have suffered much deeper pay cuts than older workers.

The under-30s were the first to "feel the pain" of the recession – and may be the last to benefit when the economy recovers, according to the Resolution Foundation think tank.

It warns that the 6.4 per cent reduction in annual pay for 16-29 year-olds between 2003-2010 has been overshadowed by the steep rise in youth unemployment to more than 1 million. The wages of 30-60 year-olds fell by 1.5 per cent over the same period, after inflation was taken into account. Young men, whose pay dropped by 8.6 per cent, fared worse than women under 30, whose wages fell 5.1 per cent. Women aged 30 and over, who saw their wages reduced by 5.8 per cent, did better than men in the same age group.

The foundation, which specialises in the "squeezed middle", found that the decline in young people's wages started well before the 2008 recession. Its research suggests that under-30s see a real terms rise in their wages only when the economy is booming, and are the first to feel the squeeze when growth slows.

Gavin Kelly, the foundation's chief executive, believes a big factor is that young people tend to be employed in sectors such as hotels, restaurants, retail and wholesale, which were struggling and saw jobs cut by technological change between 2004-2008 while the economy was growing.

"In the UK, youth unemployment is public enemy No 1," Mr Kelly writes in a blog for the New Statesman . "But when steady growth returns it is essential that we have a jobs market that sees wage gains reach all age groups. After the long fall, the young need a pay rise more than any."

He says the figures are "genuinely scary" because the performance of young people in the jobs market are seen as a barometer – or early warning signal – of the health of the wider economy.

The foundation believes that the wages of under-30s have dropped by more than 10 per cent since 2003 – and that it will get even worse as the double-dip recession bites. The think tank is worried that young people have become less attractive to employers. It believes the growth in part-time employment may be dragging down young people's pay. Another likely cause is the national minimum wage, since the pay of many young people is at its level or just above it. The minimum rate rose sharply between 1999-2003, but then levelled off in real terms.

Mr Kelly does not rule out migration to Britain being a minor factor – as young foreign workers drive down wages – but says there is no evidence that it was a primary cause.

The Office of National Statistics (ONS), which this week put average disposable incomes at their lowest level since 2003, said that "sustained population growth led to incomes being spread across a greater number of people, and therefore further reduced the growth of actual income per head over the period."

Damian Green, the Immigration minister, claimed the ONS had "confirmed that the population growth caused by Labour's uncontrolled immigration has reduced incomes". But Matt Cavanagh, a visiting fellow at the Institute for Public Policy Research, rejected that and said the latest study showed that immigration had a positive effect.