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Average wage falls with a boom in lower-paid work: Loss of factory and finance jobs has impact on pay Earnings growth has been below 1% over past year

September 5, 2014

Phillip Inman Economics correspondent

Average wages have been dragged down in real terms partly by a deep shift in the labour market as high-paying jobs in manufacturing and finance disappear to be replaced by low-paid roles in the service industry, according to a new report.

Even though employers are paying wage rises that keep up with inflation, the long-term decline of vacancies in factories and the rising numbers of jobs such as baristas and internet warehouse staff has kept average pay growth below the level of inflation, said the report by Incomes Data Services (IDS) for the TUC.

The findings are expected to fuel the debate among policymakers about why official figures have shown average weekly earnings growth stuck below 1% over the past year despite an increase in the number of people in work.

The Bank of England, which kept interest rates on hold yesterday, has wrestled with why the booming rate of GDP growth and the creation of more than a million jobs during the past four years has failed to increase wages.

Rachel Reeves, the shadow work and pensions secretary, said the report revealed the government's "failure to create the good jobs we need to push up living standards and bring down social security bills.

"Since 2010, the Tory low-wage economy has led to millions of working people facing a cost-of-living crisis which has left them more than pounds 1,600 a year worse off.

"With no action on low wages, social security costs are rising sharply with the number of working people claiming housing benefit set to double by 2019, costing pounds 12.9bn - or pounds 488 for every household."

The TUC general secretary, Frances O'Grady, said: "The economy is very good at creating low-paid jobs but not the well-paid ones that workers really need. Worryingly, the growth of low-paid work is as much a feature of the recovery as it was during the recession."

Low-paying sectors of the labour market have been creating far more jobs than high-paying ones such as finance and construction, which have both shed jobs over the past five years. Alongside this has come a shift from full-time to part-time work, with increasing numbers of people wanting to work more hours - analysis by the TUC this year found a record high of 3.4 million underemployed people.

The TUC said that over the past five years, the two lowest-paying industries - food and beverage services and services to building and landscaping activities - added 277,000 jobs, increasing their workforces by about a quarter. The low rates of pay in these industries, where the average weekly wage is pounds 224 and pounds 265 respectively, contrast with financial services, the UK's highest-paying industry with an average weekly wage of pounds 873.70. But this sector has lost 139,000 jobs and median wages have fallen by 20%.

The head of pay and research at IDS, Ken Mulkearn, said its register of pay rises, which are running at 2.5%, is a different measure from the ONS assessment of average wage growth.

"Our report shows that while pay settlements have recovered somewhat since the recession, the average earnings figures have been much weaker. The latter look to have been influenced by recent trends, such as the growth in employment in comparatively lower-paying sectors at the expense of higher-paying ones, and a rise in 'underemployment', with some people finding work for fewer hours each week than they would prefer.

"If these factors recede, then average earnings might begin to recover."

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Source: Guardian (UK)

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