Low wages are causing a “dramatic fall” in post-recession productivity rates, according to UK economists.

Workers are producing 2.6 per cent less an hour than they were at the start of 2008 and 12.8 per cent less overall than if pre-crash growth in output had continued, according to the Institute for Fiscal Studies (IFS).

Its research found a drop in real wage levels meant companies were able to take on more members of staff while output remained the same. Restrictions in the benefit system mean more people may have been encouraged to find a job while the workforce also has less power to protect wage levels, it added.

Helen Miller, a senior research economist at IFS, said: “Given the scale and persistence of falls in output since 2008 it is remarkable that there are more people in work today in the UK than there were before the recession.

“The result though is a dramatic fall in labour productivity. The scale of the productivity fall, and the degree to which it is permanent, matters for policy prescriptions.

“The labour market seems to have become much more flexible. And successive governments appear to have learnt from some of the great mistakes of the 1980s. Two decades of reforms have ensured that the benefit system is doing a much better job of ensuring that people remain in touch with the labour market.”