Friday, May 27, 2011
Overdoing the income gloom?
Posted by David Smith at 06:15 PM
Category: Thoughts and responses

Everybody knows that household incomes are being squeezed hard now but not many people know that the squeeze started before the crisis. A new report from the Resolution Foundation, "Growth Without Gain?" produces the striking result that average (median) incomes in 2015 will be no higher than in 2001. It also highlights the fact that there was no rise in real incomes between 2003 and 2008.

Let me take a look at that, beginning with the 2003-8 claim. Median full-time earnings grew by 18.6% between 2003 and 2008. This was comfortably ahead of consumer price inflation over that period, 11.3%, but many people (and the Resolution Foundation) prefer the retail prices index, which rose by 18.1%. So only a fractional rise in real median full-time earnings.

Sometimes, however, the choice of time period can be quite important. 2008 saw a spike in inflation, which rather affects the story. If we take, for example, the 2003-9 period, median earnings rose by 21%, retail prices by 16.7%. A more significant rise in median real earnings.

What about the claim that median real earnings in 2015 will be no higher than in 2001? This is based on official forecasts from the Office for Budget Responsibility, which project a very wide gap between RPI and CPI inflation throughout the forecast period - 1.5 to 2 percentage points in terms of inflation rates. Will that happen? Who knows? But it would be unusual. The Resolution Foundation's interesting report is here.