Changes in real earnings in the UK, 2002 to 2012

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Average earnings of employees in the UK have fallen in real terms - their value in relation to the cost of living, between 2009 and 2012, according to a recent report published by the Office of National Statistics (ONS).

The report states that the fall represents a change from the strong growth in real wages over the previous three decades, and that although it is too early to be sure whether there has been a permanent change in the long-term wage growth trends, the decline in real wages has now been sustained for three consecutive years. Average earnings in real terms are now at similar levels to those of 2002-03.

The report identifies some geographical and other differences within the overall picture. For instance, employees working in London earn more on average than UK employees elsewhere and their average real earnings fell less rapidly than the UK average in the period from 2010 to 2012.

There are also differences between full-time and part-time employees in the private and public sectors. The decline in real wages has short-term implications for the economy and economic indicators. The ONS opinion is that it is worth looking carefully at the evidence and its implications for the UK economy and economic indicators.

The ONS mainly used data for 2002 to 2012 from the Annual Survey of Hours and Earnings (ASHE) in compiling the report. This looks only at changes in hourly earnings. These changes are just one aspect of labour market analysis in the context of the recent period of recession and slow growth.

A full analysis would take into account a variety of factors including changes in working patterns, hours worked and involuntary underemployment in the form of temporary lay-offs or reduced hours, which affect a person's total earnings over a period of time, even if their hourly pay rate is not affected.

At the same time, the gross measure of pay used in the ONS report does not capture the full impact of austerity measures introduced in recent years. Many of these affect net (rather than gross) pay via changes in taxation, National Insurance contributions and, for public sector workers, increases in employee pension contributions from April 2012.  The report should not be interpreted as providing a full picture of the impact of the recession and economic slowdown on people's take-home pay.

A range of political opinions have been voiced, following the report publication. Whilst the opposition in parliament have clearly pointed out the fall in real earnings in the last few years, the government has been quick to identify the taxation measures which they say have been put into place to offset the fall in gross earnings - in terms of what individual employees actually receive as net income in their pay packets.