Continued record real wage declines are not the only way to employment growth

10 May 2017, by Geoff Tily in Economics

For UK workers the financial crisis has morphed into a real earnings crisis. OECD forecasts suggest that there will be very little respite in the next parliament. Over 2017 and 2018 UK real wages are expected to decline by -0.5%. Only Greece, Italy and Austria are set to fare worse.

Real wage growth forecasts in 2017 and 2018, %

Source: OECD Economic Outlook

Over all OECD countries, average real wage growth is forecast at +2.5%.

These figures are constructed using the detail of the OECD November economic forecast. Since that forecast they have released an interim forecast with an upward revision (of 0.4 ppts) to GDP growth in the UK in 2017. They do not revise the detail of the forecast but it is possible that their next outlook for UK wages will be slightly less bleak.

On the other hand the data we have for the UK in 2017 shows that real wages are already falling, against the forecasts from the UK Office for Budgetary Responsibility which had predicted a small increase (for the year as a whole). So, in our view, it seems likely that the OECD figures for the UK are in the right ‘ballpark’. And the post-crisis experience as a whole shows the UK fairly consistently at the bottom of the pack (see eg here or here and Larry Elliott’s commentary in Monday’s Guardian).

The Treasury may counter that the good news on jobs more than makes up for the decline in wages. But this is not born out by the evidence. The chart below shows many (14 of 32) OECD countries with better performances than the UK on both wages and employment over 2012-2018. (This is the period for which comparable OECD employment growth figures are readily available.)

Wages and jobs, 2012-2018, average annual % growth

Source: OECD Economic Outlook

For the record, the countries are:

These countries make it obvious that the low road is not the only road to jobs growth.