We sometimes forget that the cost of living crisis isn’t just about escalating living costs. The other half of the equation is the income out of which our bills get paid – and, according to Allister Heath in City AM, there’s bad news on that score too:

“Real wages are still falling, on average, and nobody seems to know what to do about it. Even though the economy is growing, millions are seeing their incomes depressed by low nominal pay rises and highish inflation.

“Part of the problem is cyclical; but there is also a devastating structural explanation. There is a growing body of evidence – including an excellent new report from Towers Watson – that shows that rising non-wage employment costs are crowding out wages and are the primary structural cause of depressed wages.”

Statisticians make a distinction between wages and ‘total compensation’ – the latter including things like pensions and benefits as well wages:

“If salaries had gone up at the same rate as total compensation between 2002 and 2012, the average pay packet today would how be five percentage points higher; the difference was gobbled up by surging pension payments and taxes. Had this not happened, and the previous trends had remained intact, the current row over living standards would be much reduced.”

It’s worth noting that total compensation includes employers’ national insurance. This is a bit of a nonsense, as the benefit to employees is purely notional. It would be better to count employers’ NI as a business tax (and a particularly damaging one at that).

That said, tax is not the biggest factor in the crowding out of wages:

“Employers’ national insurance increased from 6.25 per cent of total comp in 1987 to 7.25 per cent in 2012. Employer contributions to funded pension funds are now 7.2 per cent, up from 4.3 per cent in 1987; the cost of notionally funded schemes rose from 0.6 per cent to one per cent. Over three quarters of the rise in non-wage costs can be attributed to rising pension costs for employers.”

Does it matter if money is being diverted from wages to pensions? It does if we all take the hit to our wages, but only some of us get the pensions:

“The primary driver of higher pension costs in the national accounts – and hence the pressure on wages in recent years – has actually been the dwindling final salary pension schemes: costs to today’s workers have exploded, benefiting older workers still in the schemes and especially people who are already retired. Workers as a whole are paying a steep price – but only a minority are benefiting.”

Once again, it is younger people getting the rough end of the deal – just as they have on house prices, tuition fees and the national debt.

But there’s an even broader issue that Allister Heath doesn’t mention in his article – which is Britain’s long-term rate of economic growth. This was on the slide well before the credit crunch – and would have slid even further had it not been for the debt bubbles that caused the subsequent recession. Lower growth has meant lower returns on pension fund investments and therefore the higher pension costs which are crowding out wages. To put it another way, pensions transmit the economic under-performance of the past to the wage packets of the present (and that’s before we get to the state pensions that must be paid out of taxation on those wages).

Of course, those with the most generous pension arrangements are the ‘top people’ in the public and private sectors who presided over the decline of Britain’s economic growth.

I’m sure we wish them all a long and happy retirement.