Today I wish to look at something which has become a good news story for the UK economy but comes after something of a long nuclear winter. This is the situation regarding real wages or wages after allowance is made for consumer inflation. Right now the situation has brightened considerably as shown below.
Comparing the 3 months to September 2015 with the same period in 2014, real AWE (total pay) grew by 2.9 per cent, compared with 3.0 per cent in the 3 months to August. Nominal AWE (total pay) grew by 3.0 per cent in the three months to September, while the CPI decreased by 0.1 per cent in the year to September
We see that there has been quite a considerable pick-up in wage growth in the UK which has fed straight through into real wages because the official measure of consumer inflation has been pretty much zero in 2015 so far. If we look back to September 2014 we see that the 3 monthly average of wage growth had just crawled above 1% to 1.1% compared with the 3% this September. So we have had a period of much better wage growth combined with zero inflation as economics forecasting models do an imitation of HAL 9000 in the film 2001 A Space Odyssey yet again.
If there is an economics equivalent of “Open the pod doors please HAL?” I would suggest giving it a wide berth!
How did we get here?
This is a much less pleasant subject because the burst of sunlight has followed a long grim winter. So long in fact that it might find itself being called temporary in official circles! The Bank of England’s Chief Economist Andy Haldane put it this way last week.
Finally on wages, real wages have yet to return to their pre-crisis peak. Rather, they are still 6% below that level. Since the crisis, we have seen one of the largest and longest squeezes on wages since at least 1850.
He will have been using the Consumer Price Index and the numbers would be worse if you use any of the variations of the Retail Price Index. Troublingly we see that a structural change has taken place over this period.
Put differently, labour’s share of the national income pie has fallen since 2009, from around 58% to 53%
Also the average figures hide the fact that some have done much worse.
Declines in median real wages among the young have been roughly twice as large as among the old. And workers in sectors such as construction, health and social work have seen far-larger declines in their take-home pay.
So as well as average falls we have seen a shift as some have been hit much harder meaning that some have actually done fairly well. That group is understandably silent and is a theme of these times. However overall there does appear to have been a shift away from labour as shown below.
Had UK wages tracked productivity since 1990, the median worker today would be 20% better off.
Rather Marxian of course but we have discussed on here many times that there has been a shift between “capital” and “labour” which will take quite some time to reverse even if we started right now.
We have received the latest annual survey this morning which is called ASHE or Annual Survey of Hours and Earnings which has a larger sample size than the monthly estimates we receive. Sadly it still has the main flaw.
ASHE does not cover the self-employed
Such a glaring error that only seems to bother me. But as it is more comprehensive that what we normally get let us dive in. Firstly we get confirmation of what we already thought.
In April 2015 median gross weekly earnings for full-time employees were £528, up 1.8% from £518 in 2014. This follows an annual growth of 0.2% between 2013 and 2014.
Considering we were in an economic recovery the year to April 2014 was pretty poor for wages and interestingly the year to April 2015 was only a little better than the credit crunch average of 1.5%. But it did mean this welcome piece of news emerged.
Adjusted for inflation, weekly earnings increased by 1.9% compared to 2014. This is the first increase since 2008, and is due to a combination of growth in average earnings and a low-level of inflation.
It has been quite a wait for a real rise in wages has it not? The Fab Four got it right here I think.
Little darling, it’s been a long cold lonely winter
Little darling, it feels like years since it’s been here
Here comes the sun, here comes the sun
And I say it’s all right
Little darling, the smiles returning to the faces
Little darling, it seems like years since it’s been here
A Space Oddity
This caught my eye.
Median gross weekly earnings for full-time employees increased by 1.8% in the public sector, and by 1.6% in the private sector. Private sector earnings have remained consistently at around 85% of public sector earnings since 2009.
I thought that there was supposed to be a 1% cap on pay rises in the public-sector? It does not seem to be the NHS as the list sent me by Laurence Hopkins has 7 category rises but 5 falls and one unchanged. As he points out it was not Zebra Crossing Monitors either as they saw a fall of 7.6%.
Of course the public-sector has all sorts of issues as those observing the fun and games with the modernisation of the gym at the Battersea Park Millennium Stadium will have seen. Still if you spend more for the same thing that is an increase in GDP right? Er……..
We have some more fun with public-sector number crunching later.
Private sector earnings have remained consistently at around 85% of public sector earnings since 2009…… Private sector earnings were £501 in April 2015, compared with £589 for the public sector.
Okay but it morphs into this.
Av public sector pay 3.5% less than private sector allowing for factors such as age, sex, occupation & org size.
There are so many things one could reply with to that but for now I will content myself with pointing out that there are a litany of issues with such quality judgements especially with numbers where the quantity is less certain than we might like to think.
Highs and Lows
There is no surprise in this bit.
In April 2015, London topped the regional list for median earnings for full-time employees, at £660 per week.
But as we narrow things down we switch from no surprise to wondering about the state of play in Derbyshire.
In April 2015 full-time employees working in the City of London had the highest median gross weekly earnings (£921) and those working in North East Derbyshire had the lowest (£389).
Also Wales had a rough year as median wages actually fell albeit by only 0.1%.
The latest wages data feeds into a speech given this morning by Ben Broadbent of the Bank of England. In it he confirmed something that has been argued on this blog for years but is relatively rare elsewhere.
the MPC isn’t concerned solely with inflation.
They will be following the wages data closely. But we should take great care with taking too much notice of their Open Mouth Operations as Ben confirms.
If there is any value in listening to people like me…
However if we return to the numbers I will let readers choose whatever measure of house prices that they like to compare with this number.
For the year ending 5 April 2015 median gross annual earnings for full-time employees were £27,600, an increase of 1.6% from the previous year.
This fits in with the arguments I have made in today’s edition of City-AM.
Oh and here is a bit of international perspective which is my reply to being asked what the year to April 2015 represents in Euro terms.