Wages for staff under 30 years old have dropped significantly in real terms compared to pay for older workers, prompting warnings about the health of the economy.

Earnings for employees aged 16-29 years fell by 6.4 per cent from 2003 to 2010, representing the biggest pay contraction across the UK workforce, research from the Resolution Foundation has found.

Men in this age group were worst hit as their average wages fell 8.6 per cent, while women’s incomes were cut by 5.8 per cent.

In comparison, wages for staff aged 30-60 years fell by just 1.5 per cent over the same period, with adjustments for inflation.

More worryingly, the think tank said that the decline in pay for younger staff could be as much 10 per cent between 2003 and 2011 once the difficult economic conditions of the last year are factored in.

Gavin Kelly, chief executive at the Resolution Foundation, highlighted a number of reasons for this cut in earnings including a rise in migrant workers, which could have driven down income in low-paid sectors and the increase in part-time working, which also has lower wage rates.

However, in a blog written for the New Statesman, Kelly said: “Alternatively, and for me more plausibly, it could be that these numbers look scary because they are, actually, genuinely scary. For many economists the performance of young people in the jobs market is a barometer – or an early warning signal – of the health of the wider economy.”

He said that while the UK economy continued to grow between 2004 and 2008, sectors where young people get a toehold in the jobs market were already “struggling”. For example retail and hospitality saw huge job losses between 2004 and 2007, he said, suggesting “the recession may have hit the young before the rest of us”.

“Falling demand in key sectors may well have put downward pressure on young people’s wages as well as on employment levels. On top of this, it’s also likely to have eroded opportunities for career progression – with fewer ladders and more snakes – making it harder to get a promotion or an upward move to a new job (which may well affect earnings mobility over the longer term).”

Youth unemployment in the UK has hit one million and has rightly received attention overshadowing the wage falls.

“But when steady growth eventually returns it is essential that we have a jobs market that sees wage gains reach all age groups. After the long fall, the young need a pay rise more than any,” Kelly added.