Pay settlements fell to 2.5% in the three months to December 2002, according to independent analysts Industrial Relations Services (IRS). This is 0.5 percentage points down on the level recorded in the previous rolling quarter to November and the lowest seen since July 2002.
The downturn in this ‘whole economy’ measure in part reflects the high proportion of private sector deals in the sample (36 out of 38). As the new bargaining year gets into full swing, however, and more public sector deals are finalised, this dip in whole economy settlement levels is likely to be reversed.
The findings reflect the trends evident in the latest official average earnings figures. Despite labour demand remaining high, ‘headline’ whole economy average earnings growth has been relatively weak in recent months. At 3.8% in November, it remains well below the 4.5% level at which the Bank of England considers that its inflation target is liable to be threatened.
Significantly, the 3.6% headline rate of private sector earnings growth in November was the weakest for seven months. Much of the recent weakness in private sector pay settlements and earnings growth may be attributed to the precarious state of corporate profitability.
IRS Pay and Benefits Bulletin Editor, David Carr, said: “Given the likelihood of continued intense competition in many sectors, sluggish global economic growth, weak levels of investment and fragile business confidence, a significant pick-up in profitability is unlikely this year. Caught between the inability to raise output prices on the one hand and rising input costs on the other, the squeeze on profitability will undoubtedly worsen if heightened tensions in the Middle East cause oil prices to rise further in the near term. These factors indicate that the scope for a recovery in private sector pay awards – particularly in manufacturing – will be modest this year. There is strong evidence, therefore, to suggest that the gap between public and private sector settlements will persist, for the foreseeable future at least.”
