Most coverage of the Average Weekly Earnings (AWE) figures released on 20 June was about the weakness of earnings growth and the impact of this on consumer spending. While earnings growth is not as strong as it might be, in reality, much of the weakness is caused by lower bonus payments, particularly in finance. The figures showed private sector earnings growth at 1.3 per cent in contrast to public sector earning growth of 0.8 per cent.

However, a deeper analysis of the figures shows that bonuses paid out in the three months to March, particularly in the finance and banking sector, are substantially down on the same period, January to March, in 2011. The effect of this is sufficiently large to push earnings growth in finance and business services down to -0.8 per cent in the year to March 2012 and just +1.0 per cent in the year to April. Some of this development was anticipated as we saw salaries at the higher end of the finance sector boosted over the past year in a planned offset for lower bonuses in 2012.

Lower bonuses across the whole of the private sector are the main explanation for the apparent collapse of earnings in the private sector to 0.7 per cent in March and 1.3 per cent in April. The effect is much less extreme than in the first three months of 2009 when the collapse in bonuses caused private sector earnings to go well into negative territory, but it is once again a case of the tail wagging the dog.

Can we get a better understanding from the AWE figures of what is the actual trend line in earnings? There are two approaches we can take. One is to look at the regular pay series which excludes bonuses. The other is to disregard the normal method of looking at the percentage changes year-on-year using the three-month average and instead concentrate on the single month of April. By doing this we exclude the impact of lower bonuses in January, February and March, which otherwise stay in the three-month rolling average until June when March drops out (in the figures published in August). The figures for April are important because they are outside the key bonus season and give us more of a picture of the overall trend in pay.

Earnings growth in the private sector on the single month measure was 2.4 per cent in April, in contrast to the regular pay measure of 2.1 per cent. In finance and business services, the single month (April) total earnings measure was 3.2 per cent. In manufacturing, the single month April measure was 2.3 per cent. In wholesaling, retail and hospitality the total earnings (April) measure was 1.8 per cent in contrast to the regular pay measure of 2.4 per cent.

Meanwhile the impact of the long-term pay freezes in the public sector is seen in very modest change in the rate of growth from 0.6 per cent in March to 0.8 per cent in April, reflecting in part the impact of NHS workers earning below £21,000 getting increases of £250.

All of this data suggests that earnings growth in most parts of the private sector is somewhere between 2.0 to 2.5 per cent. The AWE series, however, also reflects two important background factors. One is the decline in economic output, which is reflected in lower overtime, less shift pay and lower productivity bonuses. The second is the changing composition of the workforce so the longer-term trend of increased part-time working brings a lowering of average pay levels, as there is a larger number of people earning lower amounts of pay than previously.

The IDS measure of pay settlements has shown a median increase in the private sector of 3 per cent in 2012, up from 2.5 per cent in 2011. Taken year-on-year, the IDS measure tells us about decisions on pay at company level. Over the twelve month period pay rises of 2.5 to 3 per cent have been common in the private sector. The figures for AWE earnings growth are not dissimilar, if the output weakness and workforce composition changes are taken on board.