For many in the UK the Global Financial Crisis made itself felt through a severe squeeze in the real, or after-inflation, value of earnings. In the six years to 2014 real wages fell by an average of 1.0% a year, the longest and sharpest fall since Victorian times.
The UK's recession ended six years ago but only now are earnings starting to recover. Official data released last week show that real earnings grew for the fourth consecutive month in January and at their fastest pace since April 2008.
This improvement has happened mainly because of sharply lower food and energy prices, rather than because of a recovery in wages. Nominal wage growth has been pretty stable around the 1.8% mark since October, while inflation has dropped from 1.3% to a record low of 0.3% in January.
So if rising real wages are the result of lower inflation, what will happen when food and energy prices stop falling? Could the recovery in spending power peter out?
We think not. Inflation won't stay at current, historically low levels for long. But as inflation picks up wages are likely to recover as skills shortages and recruitment difficulties make themselves felt.
Employment has proven remarkably resilient to the financial crisis. Growth in private sector jobs has more than offset nearly 1 million job losses in the public sector and the number of people employed in the UK is at record levels. Job vacancies are also the highest on record and up 71% from the trough in the summer of 2009.
The recovery has also eaten into 'under-employment' – those who, for want of an alternative, take a job which is below their capacity. Thus the number of part-time workers who say they are working part-time because they can't find a full-time job has fallen steadily over the last 18 months.
Survey data confirm the picture of a tightening labour market. The Confederation of British Industry and the British Chambers of Commerce report that recruitment difficulties are close to, or above, their pre-crisis averages.
All of this suggests that earnings are likely to rise from here.
Certainly the independent forecaster, the Office for Budget Responsibility (OBR), is positive about the outlook for wages in the UK. In its latest forecasts the OBR estimates that real wages will grow by an average of 2.1% a year for the next four years.
A recovery in spending power, low interest rates and declining unemployment point to sustained growth in UK consumer spending over the next couple of years.
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