While the latest REC/KPMG Report on Jobs revealed encouraging growth in demand for permanent and temporary/contracting staff last month, an analysis from the Institute for Fiscal Studies (IFS) reveals that wages for permanent employees have fallen to historically unprecedented levels during the present economic downturn.

The Report on Jobs recorded pay rates for Umbrella Company Employees and other temporary staff rising last month, but the picture for permies is starkly different, the IFS has found. Of employees who remained in the same post between 2010 and 2012, one-third saw either a wage cut or a pay freeze.

Economists have struggled to explain the UK’s ‘productivity puzzle’: since the start of the recession in 2008, output has fallen more steeply and for longer than at any other period in the last century, yet employment has contracted far less than in any previous recession.

The IFS study found that a large number of UK firms, especially smaller companies, have pared back wages rather than lay workers off – larger firms have tended to maintain wages but cut their employee headcounts. Claire Crawford from the IFS said: “To the extent that it is better for individuals to stay in work, albeit with lower wages, than to become unemployed, the long-term consequences of this recession in terms of labour market performance may be less severe than following the high unemployment recessions of the 1980s and 1990s.”

Inequality has also fallen, the study found, and older workers have been less affected by the downturn than in previous recessions – a sharply different picture to the recession of 1980s.

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