Real wages are a race between your pay packet and prices
The ‘real value’ of your wage depends on two things. First, the money in your pay packet. Second, the price of things you need to buy.
If prices rise faster than your pay packet then you won’t be able to buy as much. There are more coins in your pocket but the “real” value of your wage will have fallen.
That’s what happened after the recession in 2008. Consumer prices rose faster than the average wage, so its real value fell. It continued to fall until 2014.
The average real wage is lower now than it was ten years ago
Following the recession in 2008, average wages fell almost consistently in real terms until mid-2014. Since then, inflation has been low and wages have been increasing, but they’re still not back to their pre-recession levels. Now, inflation has caught up again, and the Institute for Fiscal Studies (IFS) say we could well see wages falling behind again in the coming months.
Many people are earning more
Falling average earnings don't mean that everybody's or even most people's wages are falling. The average wage is affected by who is working too. Well-paid people leaving work and less well-paid people starting work would reduce the average wage even if nobody in the country had a pay cut.
Analysis by the Office for National Statistics showed that in 2014, average earnings grew by only 0.1% but the average earnings of people who had been in their job for more than a year rose by 4.1%.
So although the drop in average earnings tells us something important about the economy overall, it's not the same as what's happened to everybody working in the UK.
London and the South East have seen the steepest falls in earnings
The level of wages is different depending on where you live in the UK.
Wages in London have seen the biggest falls. The average full-time employee in London earns £632 a week; that same average was worth nearly £700 at its peak in 2009.
Meanwhile in Northern Ireland, at the moment the average is £495 a week, while it was worth £509 in 2009.
All regions still have the same broad pattern: falls after 2009 and a recovery since 2014.
The public sector has seen slower growth
If you work for the public sector, such as in the NHS, state schools or the civil service, your pay growth has been restricted in recent years as a matter of policy, That has created a big difference in wage growth compared to the private sector.
Public sector pay has been falling behind the private sector mostly consistently for the last three years. Leaving out those who work in financial services, it’s currently rising at 1.3% a year, behind inflation (using the CPIH measure) at 2.6% and private sector workers at 2.2%.
But public sector pay is also less volatile: it was the private sector that suffered large falls in pay during the recession years, and it's been catching up since 2014. It's only now caught up to the point that both sectors' pay has changed by about the same amount since the recession.
The government has recently signalled it intends to lift the 1% public sector pay cap for police and prison officers. If this also happens across the public sector, it could well catch up with private sector pay growth in the coming years.
Men, high-earners and the young have fared the worst
The IFS looked recently at employees’ pay across age, gender and earnings. Since 2008, the value of men’s pay on average has fallen by just over 7%, compared to a fall of under 2% for women. In Scotland, Wales, Northern Ireland and North East England, the value of women’s pay has actually increased.
Similarly, “younger workers typically fare worse during downturns”, according to the IFS. Average earnings for workers aged between 22 and 39 fell most in the years following the recession, although those in their twenties have seen their average wages rise fastest since 2014.
The recession itself affected low and high earners roughly equally, but low-paid earners have seen the fastest average wage growth since 2014: the lowest-earning 10% of workers saw their average pay rise by over 12%, compared to under 5% for middle and high earners. That’s partly reflected by growth in the minimum wage and the new National Living Wage, faster than inflation.
Update 17 May 2017
We've clarified the section on regional wages.
While wages are different across the country, thev've mostly followed the same pattern of rises and falls in the last decade.
Correction 28 September 2017
We corrected a typo, from 'life' to 'lift'.
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