Half of British workers experienced a real-terms pay cut last year although official data suggested the fastest pay growth in almost two decades.
According to the Resolution Foundation, pay growth was weaker and more volatile than statistics showed.
Its quarterly earnings outlook research revealed that the median pay rise among individual workers was just 0.6% last Autumn — a real-terms pay fall of 0.2%.This means that at least half of all UK workers experienced a pay reduction.
The median pay rise increased to 1.8% in the fourth quarter of the year, 1% in real terms — the second lowest since mid-2013 despite a small improvement.
The study also showed that average weekly earnings (AWE) were disrupted by widespread furloughing across the employment market.
Official data recently revealed that nominal average weekly earnings growth reached 4.5% in late 2020 – its highest level in almost two decades. This was despite the economy experiencing its biggest contraction in over 300 years, and came as a sharp contrast to the last recession which caused a major pay squeeze.
However, the Resolution Foundation, said changes in the workforce, such as lower-paid workers falling out through job losses, accounted for half the level of pay growth in 2020.
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Earnings growth among higher-paid workers (at the 75th percentile) was relatively strong and stable – fluctuating between 2.4 per cent and 2.6 per cent between April and December 2020.
Younger workers suffered a sharper fall in pay as they were more likely to be affected by furlough and job losses. Among 18-24 year olds, annual pay growth fell from 12.3% in 2019 to 6% in 2020.
Those aged between 25 and 34 saw annual pay growth drop from 4.9% to 1.4%.
The Foundation warned that sharp falls in pay growth for young workers, at a crucial early stage of their careers, is “hugely concerning as it can potentially scar their pay prospects for years to come”.
“It is vital therefore that pay growth strengthens this year as the economy recovers, though rising unemployment is likely to limit the scope for pay rises,” the Resolution Foundation said.
Hannah Slaughter, economist at the Resolution Foundation, said: “Sadly, the story of bumper pay packets from official headline data is too good to be true. In reality, half of all workers experienced a real-terms pay cut last Autumn, with pay growth deteriorating most among those who have been hit hardest by the pandemic – the young, the low-paid, and those working in social sectors like hospitality.
“The government should prioritise getting young people’s pay and careers back on track during the recovery, and that is likely to require further policy action beyond that announced in the Budget.”
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