wages - Economics Help

UK Wage Growth

18 December 202516 December 2025 by Tejvan Pettinger

In the post-war period, apart from short-lived recessions, real wage growth was positive, growing at a trend rate of roughly 2%. But, since 2009, wage growth has been much more stagnant with periods of falling real wages This is latest date for wage growth. In Dec 2025, wage growth was 4.7%, and inflation 3.2%, which …

Effect of minimum wage on economic growth, inflation and AD/AS

11 December 202525 February 2025 by Tejvan Pettinger

How does the minimum wage affect aggregate demand/aggregate supply and macroeconomic factors such as inflation, unemployment and economic growth? A minimum wage is the statutory minimum wage that employers can pay per hour. In 2026, the UK minimum wage will be £12.71 an hour for workers over 21. It means the minimum wage in the …

Economic growth with falling real wages

18 November 20177 October 2014 by Tejvan Pettinger

The UK recovery paints an unusual situation. We have both positive economic growth and falling real wages. How can we have economic growth with falling real wages?

Real wages are not the only source of economic growth. We can see growth from other components of AD –

I (Investment), G (Government spending) plus net exports (X-M)

Also, it is possible for consumer spending to rise despite falling real wages (at least in the short term). For example, if spending is financed by borrowing or declining savings ratio. Consumer spending could also be financed through re mortgaging houses (equity withdrawal) against the backdrop of rising house prices.

Economic growth in the UK

Since 2013 Q1, we have seen a decent rate of economic recovery. In the past 12 months – between Q2 2013 and Q2 2014, GDP in volume terms increased by 3.2%

Real wages

Real wages have been falling since the start of the great recession in mid 2008. In a recessing falling real wages are to be expected, but since the recovery, we might have expected real wages to match the growth in real GDP.

Why are real wages falling despite economic growth?

1. Flexible labour markets creating low paid employment. In this recovery, unemployment has fallen more rapidly than previous recessions. Evidence suggests the economy has been successful in creating new employment (often temporary / part-time/ self-employment). These new jobs are not particularly well paid. The recovery is good for job-seekers, but less good for those already in work. The relatively elastic supply of labour willing to take low paid jobs is keeping any wage growth low.

Wages Declining as a Share of National Income

18 November 201710 December 2012 by Tejvan Pettinger

The ILO recently produced their growth and wages report for 2012/13. This suggested that across the developing world, labour markets are being characterised by falling real wages and a decline in labour’s share of national income. In particular:

Real wage growth has been flat – even negative in the past few years.
There is an increasing gap between productivity growth and wage growth. Wages are not rising along with productivity.
Wages are becoming a smaller share of national income.
In 16 developed economies, labour took a 75% share of national income in the mid-1970s, but this has dropped to 65% in 2007. It rose in 2008 and 2009 – but only because national income itself shrank in those years – before resuming its downward course. (Wages in developed world shrink at Guardian)

Real Wage Growth

It is common to refer to the low wages of China, but wages in China have roughly tripled in the past decade – meaning China has one of best wage growth rates in the world.

However, if we look at just developed economies, we see even lower wage growth.

Real Wage Growth – developed economies

The global credit crisis has also resulted in increased inequality. Wage income is declining as a share of overall national output. Improvements in labour productivity are not being matched by real wage growth. This graph below shows the increased divergence between wage growth and productivity.