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Official statistics have shed new light on how pay has moved over the past five years. Earnings for those who have retained their jobs have grown by more than was previously understood. Those who have lost their jobs and found new ones appear to have done so on less pay and fewer hours below their previous employment.
The publication last December of the Annual Survey of Hours and Earnings for April 2013 by the Office for National Statistics (ONS) reveals new data on annual percentage changes in median full-time gross weekly earnings for those employees who have been in the same post for at least a year. The analysis by ONS of the ASHE data is for full-time staff. According to the ONS, 89 and 84 per cent of full-time staff had been in post for at least a year in the public and private sectors respectively in April 2013.
This shows that for employees in the private sector median earnings grew by 6% in 2008, 2.5% in 2009 and then between 3.5% and 4% in each of the years from 2010 to 2013. By contrast, in the public sector median earnings grew by 6% in 2008, 5.7% in 2009, and then by around 3% in 2010, 2011 and 2012 before rising to 3.8% in 2013.
These rates of growth for those in continuous employment provide a clearer picture of pay movements in companies and are consistent with the IDS measure of annual pay settlements (largely between 2 to 3 per cent over the period) and the regular analysis by IDS of pay progression in the private sector.
The ASHE data also gives the annual percentage changes in median gross weekly earnings for all full-time employees, which also includes people who have changed jobs and those entering the labour market from inactivity in the year in focus. Once all those in discontinuous employment are included, the earnings increases look much more like those of the monthly Average Weekly Earnings (AWE) series. The AWE has been showing much weaker growth in earnings, though this is to do with the how this measure is constructed (see notes below).
According to the latest ASHE data the earnings for all full-time employees in the private sector run between 1 and 2 per cent over 2009 to 2012 reaching 2.3% in 2013. In the public sector the annual change dropped to 0.4% in 2011 and 1.8% in 2012 and 1.6% in 2013.
Although there is often an assumption that progression only occurs in the public sector, IDS research has shown that pay progression continues to be used in the private sector. The data from ASHE lends weight to this, again showing that since 2010 pay growth for those who have stayed with their employer has stood at around 4 per cent – a period in which settlements have been relatively subdued at between 2 to 3 per cent. The gap is likely to be down to progression and promotions rather than overtime since hours worked did not increase significantly over this period.
The impact of progression is particularly evidenced by the fact that pay growth in the public sector for those in continuous employment has held up during the Government’s imposed pay policy. Since 2010 general awards in the public sector were frozen for two years and then capped at 1 per cent, while progression was still paid in most cases (the exceptions being in most parts of the civil service and the police in England and Wales).
The fact that those in discontinuous employment can have such a large impact on the rates of change in earnings suggests that those losing their jobs have suffered the most in real terms in recent years, dropping down the pay league table when getting new employment. Many of those made redundant may have found new jobs on lower pay, at below their normal skill level or on fewer hours. This is in line with trends during and in the wake of the recession when the number of people in part-time work who would prefer full-time work rose sharply to over one million, though this has since started to come down.
New starters in a number of sectors could have started new jobs at lower pay rates than existing workers. Many of the new jobs have been part-time, particularly in the lower paying parts of the private sector. This period has also been one in which zero-hours contracts have grown, particularly in social care, where we have also seen employers refusing to pay for travelling time between domiciliary visits. The squeeze on local government funding is having a knock-on effect on the pay on offer to care staff.
For some time IDS has been arguing that the AWE series was not providing a particularly clear picture of pay movements because it is overly sensitive to changes in the composition of the workforce. It may well give an accurate picture of average earnings growth rates across the economy but it masks differences at the same time.
This is important because media commentaries on the monthly AWE figures more often than not describe the monthly increase as a measure of pay rises, when it is not. The AWE is really a measure of the changes in organisations’ paybills, and NOT individual employee earnings. ASHE is a better reflection of changes in earnings, albeit that the data is less timely.
The new ASHE earnings figures help us to understand key differences. The AWE growth rates of 1 per cent or so have been a puzzle for some time, but the sharp divide between the earnings for full-time staff in continuous employment and those in discontinuous employment enhances our understanding.
It might be reasonable to estimate that up to 20 per cent of full-time employees and 30 to 40 per cent of part-time employees have experienced very large falls in earnings and that this has directly dragged down the increase in the average for all employees.
Notes on the different earnings data
- The ASHE data on earnings is based on a snapshot of pay data in mid-April each year. This year there were 184,000 returns for individual employees. The data are provided by employers. It tends to be weak on bonus pay because the key bonus period is normally January to March. ASHE doesn’t include earnings data for the self employed.
- The AWE series is published monthly, two months in arrears. It is based on returns from up to 8,000 companies who provide total paybill and total employees for each month. The average is calculated by dividing the paybill by the number of employees. If there is a growth in part-time employees or lower-paid employees generally then the average drops down. If lower-paid support staff in the public sector are outsourced to the private sector this raises average pay in the public sector and lowers the average in the private sector.
- The IDS measure of pay settlements is based on talking to companies and organisations about the outcome of their annual pay negotiations and then calculating the median increase based on the aggregate figures from around 700 organisations. The review dates for pay increases vary across the economy, but January and April are the two key months.
Average weekly earnings growth across much of the private sector is running at close to 2 per cent. There are two exceptions to this. One is the lower paying sector of wholesale, retail, hotels and restaurants where pay growth is 2.9 per cent and the other is construction where pay growth is close to zero. Meanwhile, earnings growth in the public sector is around 1.4 per cent. More
Regular earnings growth across much of the private sector is running at around 2 per cent. There are two exceptions to this. One is in the lower paid sector of wholesale, retail, hotels and restaurants where regular pay growth is 2.7 per cent and the other is construction where pay growth has stalled at 0.1 per cent. Meanwhile pay growth in the public sector is around 1.5 per cent.
The latest Average Weekly Earnings figures from the ONS, published on 14 November, actually show that total earnings in the private sector rose by 1.8 per cent in the year to September 2012,while total earnings growth in the public sector (excluding the nationalised banks) was 2.3 per cent.
Unfortunately these figures are distorted by the re-classification in April this year of 196,000 teaching and support staff in FE and sixth form colleges from the public sector to the private sector. Two months ago the ONS explained that the consequence of the re-classification was to push up average earnings in the public sector by as much as 0.8 per cent. The average pay of these groups was clearly below the average of the rest of the public sector and removing them has boosted the average of the remainder. In addition the re-classification has had a downward impact on the private sector of 0.2 per cent. This impact was diluted as the private sector is four times the size of the public sector.
As the ONS does not currently produce earnings figures excluding the impact of the re-classification, IDS has estimated what might be considered to be the actual trends in earnings growth as opposed to the distorted figures from the ONS. This shows private sector earnings running at around 2 per cent and public sector earnings growth of 1.5 per cent.
A further point to make is that the Average Weekly Earnings series was designed to be sensitive to changes in workforce composition. This has meant that the large scale growth of part-time work since 2007 (+713,000 jobs) and the fall in full time jobs (-399,000) over the same period has lowered the average level of pay in much of the private sector. Simultaneously, outsourcing of lower paid jobs from the public sector to the private sector and redundancies among support staff in the public sector have combined to raise the average of those who remain in public sector employment.
You could easily be misled at the moment into thinking that public sector pay is rising quite a bit faster than private sector pay because, on the face of it, that is what the ONS data shows. But the fact that the data appears to stand reality on its head is a test for the fainthearted. More
The latest picture on pay from IDSPay.co.uk shows private sector awards standing at 3 per cent in the second quarter of 2012, while the median for the public sector remains at zero. The median increase for the whole economy, combining the private and public sectors is 2.5 per cent. Read the rest of this entry »
The May 2012 earnings figures published today once more give an impression of weak pay growth, with the whole economy figure at 1.5 per cent. Lower bonuses in 2012 than in 2011 across most parts of the private sector have brought down the rate of growth in total earnings. This picture is especially true of the finance and business services sector, which had much lower bonuses in May, producing total pay growth of 1.4 per cent, in contrast to 2.7 per cent on the regular pay measure which excludes bonuses. More
The Retail Prices Index (RPI) measure of inflation dropped back to 2.8 per cent in June 2012, down from 3.1 per cent in May. This annual rate of increase is the lowest since December 2009. The largest downward pressures came from lower prices from petrol and diesel as oil prices weakened as a result of world-wide economic weakness. There were also lower prices for clothing and footwear. There were some upward pressures from higher prices for leisure goods and housing. More