This is shown for the UK in Chart 14. The crisis has tended to reinforce these trends. Unemployment among the highly-skilled rose less during the crisis (Chart 15). With employment growth strong (Chart 14), unemployment within the highly-skilled sectors has returned to close to pre-crisis levels. By contrast, unemployment rates among the mid-skilled rose by more during the crisis (Chart 15). In keeping with pre-crisis trends, employment has contracted (Chart 14). Meanwhile, for the lowest skilled the picture is more nuanced. While suffering most during the crisis, they have also benefitted from rapid rises in employment during the recovery (Chart 14). In principle, these patterns of employment ought to have been reflected in real wages. We might expect wages to have risen at either end of the skill distribution, but potentially to have stalled for the mid-skilled. There would have been a “hollowing out” of wages, but the aggregate wage distribution ought to have been relatively static. In practice, the distribution of wages has not been static; it has widened over the past 20 years (Chart 16). In the late 1990s, wages for the top 10% of earners were around 6.5 times higher than the bottom 10%. Today, the figure is closer to eight. Or, put differently, in the decade prior to the recession, real wages for the top decile rose on average by 3% per year, while for the bottom decile they rose by around half that. Since the crisis, there has been an across-the-board squeeze on real wages (Gregg et al (2014)).
These indicators clearly have an important bearing on macro-economic health: among workers whose disposable incomes have fallen materially below their pre-crisis levels; among savers, the rates of return on whose assets have fallen materially below their precrisis levels and are near-zero in inflation-adjusted terms; and among companies, whose underlying efficiency has flat-lined since the crisis. These trends are also closely linked. Weak productivity has constrained UK companies’ ability to pay higher wages, such that productivity and real wages have fallen in lockstep since 2008 (Chart 3). And this combination of a weak supply side and weak pricing pressures has in turn generated the need for low or negative real interest rates. To give these developments some context, consider a simple index of real wages, real interest rates and productivity growth. Given their recent trends, and with an eye to semantic symmetry, let’s call this an “agony index”. Charts 4 and 5 plot this agony index from 1970 and back to 1870. The agony index is currently at painfully low levels.5 It has been around 5 percentage points below its 1970–2014 average since 2008. Such an extended period of agony is virtually unprecedented going back to the late 1800s, with the exception of the aftermath of the World Wars and the early 1970s. So far, then, so bad. On this evidence, the UK economy is as weak as at any time in the recent or distant past. It is firmly on the back foot.