The shift in employment from higher to lower paying industries, combined with rising levels of under-employment have helped push earnings growth to a record low, according to a new report published by the TUC.

The TUC-commissioned report examines why average weekly earnings growth – a measure of pay growth published every month by the Office for National Statistics (ONS) – is so low when most pay settlements are keeping touch with inflation.

Last month average weekly earnings growth (excluding bonuses) fell to 0.6 per cent – its lowest level since records began in 2000 – despite employment rising by 167,000 over the same period. Median pay settlements are currently around 2.5 per cent – below their pre-recession level of between 3 to 3.5 per cent.

The report, written for the TUC by Incomes Data Services (IDS), identifies several reasons for the dramatic falls in average weekly earnings growth across the UK:

  • The changing composition of the labour market, with low-paying sectors creating far more jobs than high-paying ones. High-paying industries such as finance and construction have both shed jobs over the last five years.
  • The shift from full-time to part-time work and the increasing number of people wanting more hours in their current job. TUC analysis published yesterday found that under-employment reached a record high of 3.4 million earlier this year.
  • Additional analysis of figures from the Annual Survey of Hours and Earnings (ASHE) found that people who only featured in the 2013 survey, for example young people joining the workforce for the first time, earned 3.9 per cent less than those who only appeared in the 2012 survey, for example people who had left employment.

The concentration of job creation in low-paying industries is a key reason for the fall in average pay across the economy, says the TUC.

Over the last five years, the number of jobs in the two lowest paying industries – food and beverage services and services to building and landscaping activities – grew by around a quarter, a net increase of 277,000 jobs. Average weekly pay in these sectors is £224 and £265 respectively. In contrast, job levels in financial services – the UK’s highest paying industry, with an average weekly wage of £873.70 – fell by 20 per cent, or 139,000 jobs.

The TUC is concerned that the UK economy’s inability to create enough well-paid, high-quality jobs is reducing people’s living standards, holding back productivity and harming the UK’s economic prospects.

TUC General Secretary Frances O’Grady said: “The economy is growing and employment is rising, but wages are still falling across Britain.

“Pay settlements are barely keeping up with the cost of living. We know that many employers can and should be paying their staff more.

“The causes of Britain’s pay squeeze are much wider and deeper than stingy pay rises though. The economy is very good at creating low-paid jobs but not the well-paid ones that workers really need. Worryingly, the growth of low-paid work is as much a feature of the recovery as it was during the recession.

“Unless employers start paying their staff more and create a larger number of well-paid jobs it could be many more years before we return to the kind of pay packets people enjoyed before the crash. A permanent shift towards poorly-paid, low-productivity work could also have dire consequences for the UK’s future economic prospects.”

Head of Pay and Research at IDS Ken Mulkearn said: “The IDS figures on pay settlements and the ONS figures on average earnings measure different things.

“Our report shows that while pay settlements have recovered somewhat since the recession, the average earnings figures have been much weaker. The latter look to have been influenced by recent trends, such as the growth in employment in comparatively lower-paying sectors at the expense of higher-paying ones, and a rise in ‘under-employment’, with some people finding work for fewer hours each week than they would prefer.

“If these factors recede, then average earnings might begin to recover.”