Decline in women’s earnings hits household budgets

Whilst the number of working women in the UK continues to rise, since 2009 their total earnings have been falling in real terms. With consumer spending contributing to roughly 60 per cent of the UK economy, this has important implications for the sustainability of the current recovery.

Nearly 14 million women are working today compared to nine million in 1971, whilst their participation rate in the workforce has increased from 59 per cent to 75 per cent today.

There has also been a sustained rise in women’s pay relative to men.

As the chart below shows (green line), relative pay rose temporarily during World War Two, but then fell back as women were pushed back into lower-paying jobs once male troops rejoined the labour market. The 1970s, however, saw the start of a sustained improvement, as the arrival of large numbers of babyboomer women began to break down existing barriers.

The Equal Pay Act of 1970 was thus followed by the 1975 Sex Discrimination Act and the Equal Opportunities Commission, and then by the limited introduction of maternity leave in 1978 under the Employment Protection Act. In turn, employers slowly began to accept that women could be interested in developing a career and in targeting more senior roles.

These major legislative and cultural changes led to women’s relative pay rising from 54 per cent to 79 per cent today. Whilst women’s average earnings rose nearly threefold between 1970 – 2009 from £11,000 to £30,000 (£2012). In turn, this created a virtuous circle for growth in the UK economy:

• New markets opened up as working women with children needed – and could now afford – more labour-saving devices for the home
• The emergence of dual-income households meant bigger-ticket items such as cars and houses became more affordable, as well a wider range of other consumer products.

But today, some of this progress seems to be unwinding. Women’s average earnings, like men’s, are now declining in real terms as the recession has hit earnings growth. Workers in Britain of both genders are in the sixth year of a squeeze on incomes.

Women’s earning fell to £27,000 last year, equal to 2001-02 levels, despite two trends identified by the Bank of England which should have supportive of higher earnings:

• Large numbers of Boomer women are now working longer, as their pension age rises between 2010 – 2018 to equalise with men’s and these older women should be close to their peak earnings
• Younger women are returning to work more quickly after childbirth. Their earnings should benefit from spending less time away from their career track

In fact, however, the total value of women’s earnings has fallen six per cent from £398bn in 2010 to £373bn in real terms (£2012), and is now back at 2005 levels. This is despite the increase in the actual numbers employed.

This decline is not just bad news for women themselves and for their families. It also reduces household spending power, and thus removes a critical source of support for the broader UK economy at an important moment in the recovery from the financial crisis.