Campaign seeks to reverse 7.5% fall in last six years as millions forced to cut hours or take lower wages

The UK's annual pay packet has shrunk by £52bn compared with the start of the financial crisis, according to research from the Trades Union Congress marking the launch of its pay rise campaign.

Total pay was 7.5% lower in 2012 than on the eve of the recession in 2007, with the drop in disposable income damaging living standards and sucking billions out of local economies, according to the TUC. It puts the drop down to a combination of low pay growth in real terms, changes in the kind of jobs people do and reduced hours.

"Over the last five years people have taken a massive hit in their pay packets, while millions more have had to reduce their hours or take lower paid work. Many people have lost their jobs altogether," said the TUC general secretary, Frances O'Grady, launching the Britain Needs a Pay Rise campaign. "It's no wonder businesses are struggling when so much demand has been sucked out of the economy."

Pay packets are down around the country but the amount varies significantly by region. Londoners have seen the smallest drop at 3.9%, while the north-west has suffered the sharpest cut at 10.6%, according to the TUC's analysis of official statistics on median gross annual pay using 2012 prices. The south-west, west Midlands and Scottish economies have also seen employees' overall pay packets shrink by around a tenth.

O'Grady said any pay rises had to be evenly spread across regions and workers if they were to help the economy. In the runup to the crash only the top 5% of earners experienced real wage growth above 1%, the TUC says. It wants greater pay transparency and a role for "ordinary workers" in setting boardroom pay.

"While economic growth is the key challenge facing the UK today, the years running up to the crash taught us that growth without wage gains just creates more unsustainable debt," said O'Grady.

"Employers and both local and central governments need to recognise the importance of decent wages in delivering sustainable economic growth. They can start by becoming living wage employers and being more transparent about their pay systems."

The analysis chimes with criticism from labour market experts that a recovery in corporate activity and share prices in the UK has failed to translate into new jobs and pay growth. The upturn has instead resulted in bigger company cash piles and ballooning executive pay packets, the International Labour Organisation (ILO) said this month. It warns that the UK is trapped in a vicious spiral of falling real wages and depressed investment, while rising child poverty is a very real threat.

The TUC says some pressure on wages comes from the replacement of middle and relatively well paid jobs, particularly in the public sector, with lower paid jobs in the private sector. Another factor is the rise in temporary work and underemployment – people working part-time because they cannot find full-time jobs.

There are some glimmers of a pick-up in permanent jobs and in the labour market more generally, however, in a separate report out on Tuesday.

Recruitment company ManpowerGroup says a majority of employers intend to increase their workforce or keep it the same size in the coming months. Only 3% of 2,100 employers said they planned to cut jobs in the third quarter, while 9% planned to hire. Hiring intentions in London were the most optimistic in five years. Intentions to hire outweigh plans to cut jobs everywhere but the north-east, said Mark Cahill, the company's managing director.

"For workers with in-demand skills in key sectors, businesses are hiring," he added.

"It's vital to stress that these are not just the temporary, part-time positions people typically associate with a tough economic climate – we've had a number of companies instructing us to look for highly skilled permanent staff."