By Daniel Hunter

A report from the Institute for Fiscal Studies (IFS) has suggested that wages have fallen more in real terms during the current economic downturn than ever before.

One third of workers who stayed in the same job saw a wage cut or freeze between 2010 and 2011, according to the report.

"The falls in nominal wages during this recession are unprecedented," said Claire Crawford from the IFS.

Economists have puzzled over the fact that, since the recession began in 2008, the UK has seen the longest and deepest loss of output in a century - and yet employment has dropped by much less than in previous recessions.

"Lone parents and older workers, for example, are not withdrawing from the labour market as they have in previous recessions, which may in part be driven by changes to the welfare system, " the report said.

"This means that workers may be experiencing greater competition for jobs and hence may be more willing to accept lower wages than before."

Many UK companies, particularly smaller businesses, have cut wages rather than lay off staff. Larger companies tended to reduce their workforce more but maintain wages.

"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," Ms Crawford said.

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