Half a billion people see incomes stagnate for a decade

Pay for seven in ten people across 25 countries was 'flat or falling' between 2005 and 2014, says new study

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(Image credit: Christopher Furlong/Getty Images)

A new study says that pay for up to 70 per cent of people living in developed countries has stagnated for ten years.

According to research carried out by the McKinsey Institute, half a billion households, or seven people out of ten across the 25 countries sampled, endured "flat or falling" incomes between 2005 and 2014 once the cost of inflation was deducted.

This compares to just two per cent, or about ten million people, between 1993 and 2005, reports The Guardian.

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Government action to boost welfare or, as in the UK, to cut taxes for the lowest paid have mitigated some of the pain. But McKinsey estimates that between 20 and 25 per cent of households were no better off in net terms over the ten years straddling the financial crisis.

That worst-in-a-generation crash and its sluggish recovery are primarily to blame for the flatlining income, the study says.

It adds that "a decline in the number of people available for work, more part-time and temporary working, and a decline in the influence of trade unions had also played a part". New threats, such as automation, are predicted to affect income growth in the coming years.

A direct parallel was drawn between the growing demographic in the UK whose living standards have stalled and the rise of populist politics, particularly the shock vote for Brexit last month.

Richard Dobbs, the co-leader of the research, told Bloomberg the build-up of resentment among some voter groups was like a "dangerous natural gas leak in a row of houses".

"One of them will explode. I did not think that it would be the UK first," he added.

Dobbs also signalled a softening of McKinsey's stance towards globalization. Bloomberg claims it has traditionally been unwavering in its support of "free trade, open data flows, cross-border investment, and liberalised immigration".

Dobbs stressed the group "still sees value in offshoring, immigration, trade, and so forth", but that its view was evolving.

"When we launch a new policy, let's think about the impact on those groups [who have been left behind]," he said. "Are we prepared to damage competitiveness a bit to reduce the risk of an explosion?"

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