Shrinking wage pool costs workers £60bn a year

The falling proportion of national output that goes on wages has meant that UK workers today are taking home £60bn a year less (in today's money) than workers did 30 years ago, according to a new report published by the TUC.

The report documents the scale of the real terms pay cuts and downgraded terms and conditions that employees are facing, and warns that UK workers are at risk of a near-permanent lowering in the pattern and nature of their working conditions, with disastrous potential consequences for our future economic health.

The report shows that earnings took a sharp hit during the recession - dropping from an average increase of 4.2% in 2007 to just 1.7% in 2009 - and there has been no post-crash rebound. In September 2011, nearly two years on from the end of the recession, 99% of pay deals were below RPI inflation - the measure most commonly used in setting pay.

While the depth of the recession raised the wage-output ratio in recent years, the Office for Budget Responsibility has predicted that it will drop even further by 2016, hitting living standards and causing a further drag on the economy. The TUC wants the issue of lost earnings to be addressed by making wage growth a far bigger part in the government's economic strategy.

Decent wage rises are the only sustainable way to drive consumer confidence and spending, says the TUC. More collective bargaining, investment to boost workers' skills, stronger corporate governance including action to crack down on top pay, and encouraging the growth of well-paid jobs beyond financial services and the City would all help to address the UK's lost wages crisis.