Real Wages and Unemployment in the Big Squeeze

UK real wage growth has slowed down, stagnated and recently turned sharply negative. We document the nature of real wage changes across the wage distribution over the last three decades, showing that recent patterns represent a distinct break of trend that pre-dates the onset of recession. We explore whether unemployment has become a stronger moderating influence on real wage growth and report, using aggregate economy-wide and regional panel data, that real wage–unemployment sensitivities have become stronger in the period from 2003 onwards. Finally, we offer some assessment of possible drivers of this increased sensitivity of real wages to unemployment.