Claims that weekly pay growth reached its highest rate for two decades in 2020 were too good to be true, according to a think-tank which has found half of all workers actually experienced a pay cut last autumn.
The Resolution Foundation’s latest quarterly earnings outlook finds that compositional changes in the workforce, such as lower-paid workers losing their jobs, skewed official figures which claimed that nominal average weekly earnings growth reached 4.5% in late 2020.
In fact, pay growth among lower-paid workers fluctuated between 0.2% and 1.4% between April and December 2020, which amounted to a pay cut in real terms.
Higher-paid workers saw their weekly earning grow between 2.4% and 2.6% during the same period.
The median pay rise for an individual worker in 2020 was 0.6% – a real-terms pay cut of 0.2%, the think-tank claimed.
“The economy experienced its biggest recession in over 300 years last year, with a third of private sector workers put on furlough at its peak. And yet somewhat implausibly, pay growth reached its highest level in almost 20 years,” said Hannah Slaughter, economist at the Resolution Foundation.
“Sadly, the story of bumper pay packets from official headline data is too good to be true. In reality, half of all workers experienced a real-terms pay cut last autumn, with pay growth deteriorating most among those who have been hit hardest by the pandemic – the young, the low-paid, and those working in social sectors like hospitality.”
Younger workers experienced the biggest deterioration in pay growth. Of the 18 to 24-year-olds still in work, annual pay growth fell from 12.3% in 2019 to 6% in 2020. Annual pay growth among 25 to 34-year-olds fell from 4.9% to 1.4%.
This comes on top of the fact that workers in these age groups are more likely to have been furloughed or lost their jobs, the think-tank said.
Real-terms pay growth fell for other age groups, but to a much lesser extent. Pay growth for workers aged 35 and over is traditionally lower as workers in this age group are more likely to be settled in their careers and less likely to move jobs.
The average worker aged 45-64 did not recieve a pay increase at all in 2020, the analysis shows.
Slaughter said: “This pay deterioration is particularly concerning for young workers as it risks scarring their pay for many years to come. The government should therefore prioritise getting young people’s pay and careers back on track during the recovery, and that is likely to require further policy action beyond that announced in the Budget.”
XpertHR analysis of 2021 pay intentions showed that organisations will continue to award pay rises at 2% on average, a continuation of the trend seen throughout 2020.