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People who started their career in the 1990s were paid on average 40% more in real terms in their first 18 years than those who started in the 1970s were at the same stage of their career, a new report from ONS has found. 

The article uses inflation-adjusted earnings data to see how the pay of people who were 21 in 1995 has fared over the period to 2013, by which time the workers concerned were aged 39. This is compared with the cohorts who turned 21 in 1985 and 1975. A similar comparison of the age range 21 to 49 shows that those who started work in 1985 earned 18% more than their 1975 counterparts.

The difference in earnings between the 1975 and later cohorts means that those who started work in 1975 had to work between three and four years longer than those who started in 1985 to accumulate the same amount of earnings and between five and six years longer than those who started in 1995.

Since 2009 all three cohorts have seen a fall in their real earnings, with inflation as measured by the Consumer Prices Index being above wage growth. Average wages for those who started work in 1995 fell by 10% to £12.72 per hour from a peak of £14.12 per hour in 2009. For those who started work in 1975, wages fell by 12% to £11.03 per hour in 2013, from a peak of £12.54 per hour in 2009. Some of the decline for the 1975 cohort may be explained by people in their late fifties beginning to consider retirement, with the highest earners often retiring early. This would bring down average pay before any consideration is taken of the wider economic conditions.

In 1975, there was a marked difference between men and women in pay levels across the age range, except for the very youngest group, with the widest gap being for those aged 38 in that year (men of that age being paid on average 61% more than the women). In 2013, pay for the sexes was similar up to the age of about 30, with the divergence peaking at 45% for age 49.

The report also finds that wage inequality across the UK, as measured by the ratio of the top 1% of earners to the bottom 1% of earners has fallen since the introduction of the National Minimum Wage. In 2013 the highest paid employees earned 11 times more than the lowest paid, down from 13 times in 1998. Wage inequality has also fallen across all regions of England and the devolved countries of the UK. In 2013 inequality was highest in London, with a ratio of 15, and lowest in Wales (a ratio of eight). The lowest level of inequality in Wales is explained by the fact that compared to other parts of the UK it has the lowest wages among their highest earners.

The report finds that the NMW has caused clear wage growth at the bottom of the earnings distribution for both full-time and part-time employees. Between 1975 and the introduction of the NMW in 1998, real earnings growth for the bottom 1% of full-timers was 63%, while the top 1% of earners saw growth of 138%, more than twice as much. However between 1998 and 2013, the bottom 1% of earners saw growth of 49%, 2.3 times more than for the top 1%.

Background notes

1. The report is on the ONS website at http://www.ons.gov.uk/ons/rel/lmac/uk-wages-over-the-past-four-decades/20 14/rep---uk-wages-over-the-past-four-decades.html
2. The report uses earnings data from the Annual Survey of Hours and Earnings and its predecessor, the New Earnings Survey.
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