In real terms, the UK workforce is earning less in 2014 than at any time in the last 40 years.
The good news is that UK inflation is now down to 2%, the lowest it’s been since 2007. The bad news is that living standards are not improving. In yesterday’s BBC Newsnight, Andy Verity explains that the decade we live in today is more challenging financially than the last four decades, including the 1970s. Whilst inflation was much higher (a whopping 25% in 1975), wages were rising even faster. So in real terms, people were actually improving their living standards.
For the last 5 years, average income has started to fall in real terms – and it’s fallen fastest, not in recession, but in the recovery. Daniel Weldon, Senior Economist TUC says that people have been prepared to accept lower pay to help secure their job, but now that the economy is growing and employment is growing employees should feel more secure in asking for a pay rise.
Newsnight claims that companies have built up a pile of cash worth £671bn. With prices rising faster than wages, they’ve been getting more money in for the goods they sell and are paying out less to their staff. So why can’t companies spend that giant cash pile on bigger pay rises? John Cridland, Director-General CBI argues that the cash belongs to shareholders and should be invested for a return, which means workers need to be more productive, using more up-to-date technology, delivering new products and services in order to return a bigger return for the business. At least Mary Doyle, Deloitte UK in the Newsnight debate is optimistic and believes real term earnings are likely to rise this year.
Personally, I think most employees have understood the need to batten down the hatches and sacrifice salary increases during the long drawn out recession. But enough is enough.
In 2014, there will be growing impatience and unrest amongst the workforce. Employers need to pay more attention to employee satisfaction, otherwise they could lose some of their best talent. In many cases remuneration levels need to be addressed so that salaries are in line with where they should be. With so much positive talk about the economic recovery and news of companies enjoying healthy profits again, employers shouldn’t ignore the inbalance of top-line revenue versus wage cost.
If employers are complacent, they can expect a much higher rate of staff turnover this year as employees leave to pick up higher salaries elsewhere.