What would happen to a nation if its citizens were to gradually earn less instead of more? A logical answer to that question would be that they would eventually succumb to debt and that many of them will in the end face bankruptcy.
The sad reality is that we are not talking about a theoretical nation here. According to the results of a new study by the TUC, the level of real earnings in the UK has been dropping consistently over the past seven years.
The study reveals that since 2007, there was a drop of 8% in average real earnings in the country after taking into account escalating prices and an absence of wage growth to compensate for the former.
This means the latest pay squeeze is worse than what happened during the Great Depression. It is, in fact, the worst since the start of the Victorian era around 150 years ago.
The fall in real spending power of British consumers was shown to be more than double the reductions recorded during the financial crises of 1865-1867, 1874-1878, 1921-1923 and 1976 to 1977.
During the worst of these recessions real income dropped by only 4%. The latest downturn is also lasting much longer than any of the recessions quoted above, which makes it fair to say that we are living in the worst recession in recent history.
Frances O’Grady, the secretary general of the TUC, called the situation ‘shocking’ and said: “The government says the economy is growing again, but there’s no evidence of any recovery in ordinary workers’ pay packets.”