Widespread wage freezes across the private and public sector will reduce consumer demand and could threaten the UK's fragile economic recovery, the TUC warns ahead of its third annual pay bargaining conference in London today (Tuesday 16 February 2010).

To coincide with the conference, jointly hosted with Incomes Data Services (IDS), the TUC has busted ten common myths about wages in the recession.

The TUC says that reports of widespread pay freezes, a fall in private sector wages and soar away public sector pay have all been greatly exaggerated.

Unions have negotiated wage freezes and cuts in struggling firms as a genuine alternative to job losses during the recession, but the vast majority of companies agreed decent pay rises. IDS research shows that the average pay settlement in 2009 was 2.3 per cent, even though inflation was below zero for much of the year.

The TUC rejects the myth put forward by employer groups that raising the National Minimum Wage (NMW) for young people will make it harder for them to get jobs, saying instead that it is a lack of vacancies for new entrants, as well as a lack of experience, that is making it harder for young people to find work. The TUC also says that young workers' employment has fared better in low paying sectors than the rest of the labour market.

Speakers at the conference - including TUC Deputy General Secretary Frances O' Grady - will say that across the board public sector pay freezes and an arbitrary freeze in the minimum wage are unjustified, and that hitting ordinary people's pay packets will reduce consumer demand which is vital for economic growth.

Frances O' Grady will say: 'The UK's deep recession and low inflation have inevitably pushed wage settlements down. Unions have sensibly accepted pay freezes where it genuinely helps to keep people in work. But union negotiators are wise to employers exaggerating the need for pay restraint just so they can boost profits.

'There is a determined attack on the public sector from a politically motivated fringe that want to shrink the state. Not surprisingly they want private sector employees to think the entire public sector is paved with gold.

'But public and private sector pay are rarely linked. In the boom years the public sector fell behind the private sector, while two year deals in much of the public sector has allowed public staff to catch up a little.

'With inflation rising, it is only right that both private and public sector staff should look to pay increases in the year ahead. If staff are not paid properly then companies will have no-one to buy their goods and services.'

NOTES TO EDITORS:

Ten myths about wages in the recession

Above inflation wage increases could set off a damaging wage spiral. Wages are not driving inflation at the moment. The current increase is caused by the end of the VAT cuts and the recovery of new car sale and fuel prices. It's normal for wages to increase above inflation. Since 1960, wages have increased 183 per cent more than prices and this extra spending power has helped to fuel economic growth. If earnings had only increased in line with prices then the average wage would not be £480 as it is now, but just £186 per week - less than the current minimum wage.

Further freezes and cuts are needed to make companies profitable again. The gross rate of return for UK companies (excluding finance and oil and gas) - a key indicator of profitability - has fallen to 10.9 per cent from a record level of 12.5 per cent in 2006. The current figure is not particularly low, especially when compared to the current bank rate of 0.5 per cent or the 9.6 per cent return earned during the 1992 recession. While pay restraint may be needed to save jobs in some struggling companies, widespread pay restraint would put less money in people's pockets and reduce consumer demand, which could threaten economic growth.

Wage freezes have been widespread throughout the private sector. IDS research shows that in one in three private sector companies agreed wage freezes in 2009, which were concentrated in manufacturing and construction. Two thirds of companies gave increases and the median rise was 2.3 per cent.

Wage freezes will be just as widespread in 2010. DespiteUK GDP shrinking by 5.5 per cent during the recession and RPI falling to -1.3 per cent, pay settlements averaged over two per cent in 2009. With the economy out of recession and inflation forecast to be over 2.5 per cent in 2010, wage settlements are likely to recover.

Unions have accepted freezes because they are too weak to negotiate pay rises. Unions have agreed wage freezes and cuts only as a genuine alternative to job losses. But they are wise to companies trying to use wage restraint to boost their profits. The union wage premium still exists - Government figures show that union members earn an eighth more than non-union members, which means an average of £1.45 more per hour.

Public sector pay freezes are an alternative to job losses. Presenting pay freezes as an alternative to job losses has always been a false choice as short-term pay restraint has a limited impact, except on staff morale.

A minimum wage freeze will prevent job losses in the private sector. Making the lowest paid pay for the mistakes of super-rich would be grossly unfair and make little economic sense as low paid workers are more likely to spend, rather than save, their wages than median and high income earners. The recession has hit finance, construction and manufacturing harder than the minimum wage sectors.

Raising the NMW for young people will make it harder for them to find jobs. Young people have undoubtedly been hit hard by the recession. But it is a lack of vacancies for new entrants, as well as a lack of experience, that is making it hard for them to find work. Young workers' employment has fared better in low paying sectors than the rest of the labour market, showing that the NMW youth rate has not led to job losses, as many employer groups predicted.

Public sector wages rocketed while private sector wages contracted last year. The headline 3.8 per cent public sector pay rise was caused by the inclusion of workers in nationalised banks. The figure excluding these workers was 2.8 per cent. The wage contraction in the private sector was due to a restrained city bonus season. The real story here is how much the banking sector dominates average wage levels. Since 1999, public sector wages have increased by 3.5 per cent a year compared to 3.97 per cent in the private sector.

Public servants earn more than workers in the private sector. Comparing overall public and private sector wage is like comparing apples and pears. Public sector workers have, on average, higher qualifications and do jobs that are more skills intensive. The Official Labour Force Survey shows that 53 per cent of public sector employees have higher education qualifications, compared with 29 per cent of employees in the private sector. Many low-paid public sector jobs have recently been outsourced to the private sector too. When similar jobs are compared 'public sector pay differentials do not seem to depart strongly from zero', according to the Institute for Fiscal Studies' Green Budget.