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What’s the point of economic growth? Third of UK workforce don’t expect a pay rise this year despite - 17 Feb 2014

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A survey by the Chartered Institute of Personnel and Development discovered that a third of employees believe they will not receive a pay rise in 2014 and a further third said any increase will not keep up with inflation.

Just over a third of the 2,700 people questioned received a real terms wage rise in 2013 to improve standards of living, said the report.

The study comes amid warnings that the ‘severe fall’ in real wages will not be reversed until there is a big improvement in productivity and follows the Bank of England’s revision of its forward guidance policy only yesterday.

Despite upping the growth forecast for this year to a robust 3.4 per cent - the strongest growth since 2007 - Bank governor Mark Carney said that Britain’s economic recovery was neither ‘balanced nor stable’.

The inflation report added that there was still up to 1.5 per cent of ‘spare capacity’ in the economy - meaning growth is still 1.5 per cent behind where it could be, a gap that tends to suppress wage rises.
Mr Carney added his policy of forward guidance would now focus on that spare capacity and also monitor wage increases before any rise in interest rates takes place.

The CIPD said there had been a ‘sustained squeeze’ on household finances, with average weekly earnings between 7.8 per cent and 10.2 per cent lower since the start of 2009.

The fall has been the most sustained since the Second World War, and will not be reversed until there is a ‘substantial improvement’ in the UK’s poor productivity record, said the CIPD.

The figures are likely to be leapt on by the Labour party, which since September has claimed Britain is in the midst of a cost of living crisis. They also cast doubt on the government’s claim last month that most households has seen their incomes rise in real terms as a result of falling inflation and increase to the personal tax allowance.

Experience in the United States has shown that a return to real terms increases in pay could not be taken for granted even if the economy continued to pick up.

The Economic Policy Institute think tank last week showed the average weekly US wage amounted to $768 in 2012 but when adjusted for inflation wages have remained stagnant since 2000.

The trend poses challenges for managers, who will need to find other ways of motivating staff to improve their performance without the promise of increased pay, the CIPD warned.

Last month, official figures showed real wage growth had actually fallen 2.2 per cent since the start of 2010. Real wages grew by an average of 2.9 per cent in the 1970s and 1980s, 1.5 per cent in the 1990s, 1.2 per cent in the 2000s despite each one of those decades seeing at least one recession.

Mark Beatson, chief economist at the CIPD, said: ‘The politically charged debate about wages and the cost of living won’t be solved by politicians trading blows over statistical analyses.

‘Instead, we need to recognise as a nation that real increases in pay will only be delivered through increases in productivity, and that for this to happen we need employers, employees and policy makers to come together in a combined effort to improve UK productivity.

‘We need a shared agenda to produce the long-term improvement in productivity needed to make higher pay affordable and sustainable without pushing up unemployment.

‘Government has a part to play too, with a more concerted effort needed to provide an improved supply of higher level skills and just as importantly encourage greater demand for and utilisation of these skills.’

TUC general secretary Frances O’Grady said: ‘Ordinary people are still facing the biggest incomes squeeze since Victorian times, as the real value of wages has fallen every year since 2010. While it’s good news that our economy is finally growing again, most people won’t feel the impact of the recovery until pay starts to rise.

‘Productivity growth is an important part of the solution, but so is action to reduce the UK’s persistent and growing pay inequalities. We can’t build a sustainable recovery if it’s only ever Britain’s bankers who get a pay rise.’

Article Reproduced from ThisIsMoney.co.uk