WELSH - Young people do not enjoy the same progression in work as previous generations.^[1] This has a negative impact on young workers’ earnings and living standards. Despite some improvement in employment outcomes - 79 per cent of today’s 21-30-year olds are in work, compared with 76 per cent of the 21-30-year olds of two decades ago - today’s young workers have entered the labour market at a time of wage stagnation and low economic growth. The UK is experiencing the longest squeeze on earnings since Victorian times, and the UK’s recovery from the 2008 crash remains weak, with average earnings still £1000 below their pre-crisis levels.^[2]

The current generation of young people have entered the labour market at a time when productivity and GDP growth are exceptionally weak. UK productivity grew by just 0.2 per cent a year between 2007 to 2017 - the lowest productivity growth figure since the decade to 1817.^[3] TUC analysis shows that workers who entered the workforce in the post-war years, or who retired in the 1990s and early 2000s, experienced GDP growth per capita 50 per cent higher than younger workers who started work from 1996. The same group experienced GDP per capita growth around six times greater than those who started out around the time of the financial crisis.^[4]

For those entering the labour market during this period, exceptionally low wage growth and productivity is all they have known at work. Workers born between 1981 and 2000 are the first generation to experience lower income gains than previous generations when entering the labour market since records began.⁸

23 per cent of the 21 to 30-year-olds we spoke to told us that they had struggled to earn enough to afford their basic living costs in the last five years.1

Pay gaps between younger and older workers have widened

Real hourly pay has increased faster for 31 to 64-year-old employees than for 21 to 30year-old employees over the past two decades. Older workers have seen hourly pay rise by £2.37 in real terms since 1998, compared to only £1.07 for younger workers.

In most industries, older workers have pulled away from younger workers, with larger real pay increases. While the average 21 to 30-year-old employee saw an improvement of £1.07 an hour in 2017 compared with 1998 in terms of real spending power (equating to £42.80 a week or £2,226 a year), the average 31 to 64-year-old employee is £2.37 an hour better of off in terms of real spending power (£95 a week, or £4,930 a year).

Over half (55 per cent) of young workers said they would have to use a credit card, an overdraft or borrow from family and friends if they were landed with an unexpected bill of £500.

This means that by 2017 the average 21 to 30-year-old is £1.30 further behind the average 31 to 64-year-old, compared with the young worker cohort of 1998. Over an average 40hour week, young workers in 2017 are £52 a week, or £2,704 a year, further behind older workers than in 1998.2

Table A: Real pay growth for 21 to 30-year-old employees compared to 31 to 64year-old employees by industry 1998-2017

Labour Force Survey whole year average, median pay

Note: Table deflates for CPI increase using current prices

Looking at the wage differentials by industry sector, the real estate, renting and business sector shows the largest disparity, with older workers getting an increase of £4.33 per hour whilst younger workers only saw real average pay rise by 15 pence. The jobs in this industry are varied, and include accounting and tax services, engineering, advertising, market research, call centres, travel agents, private security and cleaners. This sector, broadly defined, is more likely to be characterised by high levels of wage inequality. Young workers are more likely to be concentrated in elementary occupations than older workers^[5] and are therefore likely to be concentrated in the low paid jobs in this industry.

In the education sector, real pay has been squeezed for both age groups. This may be caused by the increasing casualisation of higher education^[6] and the inclusion of early years and nursery education in the category. After 20 years, average real pay is up by 19 pence for older workers and by 11 pence for 21 to 30-year olds. The larger growth in the age pay gap in health and social care probably reflects the larger concentration of younger workers in lower paid areas of privatised social care.^[7]

Six per cent of young workers who are parents would resort to using a payday lender if they were landed with an unexpected bill of £500 – compared with two per cent of all young workers.

Although the hotels and restaurants industry has experienced higher than average hourly pay growth for 21 to 30-year olds compared to the £1.07 average, this is likely driven by the national minimum wage, providing a statutory minimum hourly wage for the low pay sectors. The average hourly pay itself remains very low. It is a similar story for the wholesale, retail and motor trade industry, with average hourly pay the second lowest for 21 to 30year-olds after hotels and restaurants.3

20 per cent of young workers – and 27 per cent of young workers who are parents - skipped a main meal in the last year because of a shortage of money.

There are four sectors where average pay has risen faster for younger workers: agriculture, electricity, gas and water supply, transport storage and communications, public administration and defence. In these sectors, the rising national minimum wage and collective bargaining may have had a relatively stronger impact, and the role of wages boards are likely to have been a factor in agriculture. There will also have been compositional effects to these industries, with the nature and mix of jobs changing over time – for example, the communications sector has largely been digitised during the past two decades.

Nearly a quarter of young workers have pawned or sold something, and 22 per cent went without heating when it was cold in the last year.

Slower wage growth for younger workers has meant that the pay gap between those aged 21-30 and older workers has widened significantly over the past two decades. In 1998, the median pay gap between workers aged 21 to 30 and those aged 31 to 64 was 14.5 per cent nationally; this figure increased by 50 per cent over the next two decades, to 21.9 per cent in 2017.

Table B: The real age pay gap for 21 to 30-year-old employees compared to 31 to 64-year-old employees 1998 – 2017

1998. (21-30) (31-64) Pay gap 2017 (21-30) 2017 (31-64) Pay gap 2017

Labour Force Survey whole year average, median pay

41 per cent of young workers have had to ask their family or friends for financial help. Over one-fifth have put off starting a family and over a quarter have put off changing careers due to money worries.

[1] Gardiner, L. 2017. Study, Work, Progress, Repeat? How and why pay and progression outcomes have differed across cohorts, Resolution Foundation.

[2] TUC. January 2018. Living on the Edge: Experiencing workplace insecurity in the UK.

[3] Tily, G. April 2018. Don’t get too excited about the latest productivity figures, we’re in the worst decade of growth for two centuries. TUC.

[4] TUC, April 2017. “I feel like I can’t change anything”: Britain’s young core workers speak out about work. ⁸ Resolution Foundation and Intergenerational Commission, May 2018. A new generational contract: the final report of the intergenerational Commission.

[5] See Table 4 in Appendix

[6] University and College Union, April 2016. Precarious work in higher education: A snapshot of insecure contracts and institutional attitudes.

[7] TUC, September 2016. Living for the weekend: understanding Britain’s young core workers.

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