One in five British workers has suffered a pay cut, economist finds

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The Independent Online

One in five British workers has suffered a pay cut in the past 10 years, research by a member of the Bank of England's Monetary Policy Committee has found.

Stephen Nickell, a leading labour market expert who helps set interest rates, also found that membership of a trade union appears to protect workers from a drop in pay, which was much more common at the hands of private-sector employers.

Professor Nickell scrutinised pay awards over the last quarter of the 20th century. He found that since a period of low inflation began in 1993 about 20 per cent ofworkers suffered a decrease in nominal pay. In contrast, when inflation peaked at about 20 per cent, only 5 per cent suffered a drop.

Once inflation is taken into account the real growth in wages over the period studied appears miserly. In three of the five years leading up to 1999 workers suffered a real drop in pay - where inflation outweighed any rise in income - or received an increase of less than 0.1 per cent.

Figures for pay settlements of unionised workers - about a third of all workers, mostly in the public sector - showed none suffered a pay cut in the six years up to 2000.

Professor Nickell writes today in theEconomics Journal magazine: "Once inflation becomes low after the mid-1980s what actually happens is that in the unionised public sector both pay cuts and pay freezes become less common than in the non-union private sector."

However, he said that pay settlements did not tell the whole story because they did not include elements such as merit pay, incentive schemes and individual promotions or demotions that managers would use to alterpay rates.

Separate research published today showed that the average pay settlement over the summer was for a rise of 3.3 per cent. This was an increase from 3 per cent in the previous three months, according to Incomes Data Services.