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Wages should finally surpass 2007 peak this month but 30-somethings still carry 'wage scars' of the recession

This Is Money logo This Is Money 08/11/2019 Harry Wise For Thisismoney.co.uk
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Twelve years ago, Stephanie Meyer released the third book in her Twilight Saga, The Bourne Ultimatum opened in cinemas, and Gordon Brown was in the second month of his premiership.

August 2007 was also the month when Britons’ payslips were at their highest. Since then, wages have experienced the longest squeeze in earnings for over 200 years.

But according to a prominent economics think-tank, the UK should surpass ‘peak pay’ either sometime later this month or in December.

a piece of cake sitting on top of a table: Wages in Britain should surpass the 2007 peak this month according to a new report© Provided by Associated Newspapers Limited Wages in Britain should surpass the 2007 peak this month according to a new report

In a quarterly briefing, the Resolution Foundation says: ‘With real pay growth at a healthy 2 per cent thanks to the tight labour market, projections suggest we are on course to hit a new peak in November or December this year.’

Pay for workers on the lowest incomes has experienced the largest surge above its peak - climbing by 10 per cent - mainly due to the gradual increases in the national minimum wage.

The think-tank says that the average weekly earnings of a UK worker might have already passed its August 2007 peak of £513 per week due to the tight labour market keeping real pay growth at a ‘healthy’ two per cent.

But it warns that many groups are still undergoing a significant pay squeeze, especially workers in their 30s, who are suffering wage ‘scars’ from the global financial crisis.

Industries such as mining, public administration, and science and technology have undergone some of the biggest pay squeezes of any sector, while the median wages of workers in the South East and Northern Ireland have been the hardest hit.

Gallery: What the average person earns in different countries around the world (Love Money)

Wonder where your country fits on the international pay scale? Using data compiled by the OECD and the International Labour Organization (ILO), unless otherwise stated, we take a look at average wage levels in 39 different nations around the world.

Analyst Nye Cominetti said the rise in peak pay ‘is a big living standards milestone and a relief for households after an unprecedented pay downturn.’

He cautioned against the findings though, stating that ‘politicians tempted to use the return of ‘peak pay’ to claim that Britain ‘has never had it so good’ should remember that pay for millions of workers is still below pre-crisis levels.’

The report says that had real earnings growth kept increasing at an average annual rate of 2 per cent since August 2007, Britons would be bringing home an extra £138 each week.

A spokesman for the Resolution Foundation told This is Money that it was hard to say whether recent wage growth would benefit the Conservative Party in the upcoming general election.

They said: ‘The return of ‘peak pay’…marks a turnaround from the 2017 election, when pay packets were shrinking. But whether this generates a feelgood factor will depend on what people remember most – a good last ten months for pay or a terrible last ten years.’

Boris Johnson wearing a suit and tie: Wages could be returning to peak levels at the right time for Boris Johnson's Conservatives© Provided by Associated Newspapers Limited Wages could be returning to peak levels at the right time for Boris Johnson's Conservatives

The Conservative Party’s low support among young people has been occurring even when wages have been rising, they added.

‘While it’s certainly true that young people – specifically people in their 30s who came of age during the crisis – have been worst affected by Britain’s pay downturn, Britain’s age divides have been building for decades.’

‘While young people have always been more likely to vote Labour, and older people Conservative, these gaps have been growing.’

The briefing also found that the income gap between those at the 90th and 10th percentiles has declined in every region over the last year, continuing a decade-long trend.

Northern Ireland has the lowest 90/10 earnings ratio number, 2.9, while England’s ratio is around 3.5.

The Resolution Foundation claims the drop is primarily due to wage increases for low earners, which has been driven predominantly by advances in the minimum wage. 

Many also work in the hospitality sector, where pay has gone up by 13 per cent above its peak.

But the think tank maintains that despite the improvements, ‘given the depth of the squeeze…the focus now should be on keeping current healthy pay growth going into 2020 and beyond so that all groups can enjoy a proper pay recovery.’

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