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Julia Hanna

Verditer Consulting


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Low wage increases in a buoyant jobs market – don’t be fooled!


So, the headlines shout “Wages Growth Lowest Since 2001” alongside messages of record low unemployment and an economic upturn.  Should you still choose to fight that battle for an increase in the salary budget?

The Office of National Statistics (ONS) reported annual wage growth (including bonuses) fell to just 0.3% in the second quarter of 2014, down from 1.9% for January to March 2014.  Sitting well below inflation (1.9% CPI, June 2014) it means workers continue to be worse off in real terms.  Not what we were expecting, especially alongside a six year low in unemployment of 2.1m and GDP back at pre-crisis levels. What does all this this tell us? 

Does this reflect a trend for new jobs to be concentrated in lower-paid sectors or lower paid occupations? To some extent this could be true – and the social, political and economic implications of that are a debate for another time. 

What we want to do is take a closer look at those ONS statistics. Boring perhaps, but important. Those who misinterpret the data and fail to invest in pay over the coming year could seriously harm business recovery.

  • The data will include the 5.4m employees in the Public Sector who are subject to a wage freeze.
  • It excludes the increasing number of self-employed, currently 4.5 million. This accounts for around 40% of the job creation in this parliament, many of whom are in the sub-groups of redundant Public Sector workers now picking up contract work and 100,000 or so construction workers who have re-joined the ranks of the self-employed. Some of these may see wages rocket as the economy picks up.
  • The data will be retrospective in nature, but there’s also an additional time lag.  Most salary reviews take place in January or April but the budgets are set much earlier.  The economic outlook was very different in the third quarter of 2013.
  • The ONS data looks at total average wages year on year rather than wage increases. This means the sample is different year on year.  For example, it includes people this year who were unemployed last year (employment has increased by almost one million in the 12 month period) and excludes workers this year who have retired or left the employment pool.

Contrast this with data available from Income Data Services (IDS) showing a median salary movement of 2.5% for the past three months in ‘manufacturing and private sectors.’ This is based on a static data sample and shows consistent salary growth with the previous quarter. 

We still see strong messages for salary investment. The International Monetary Fund (IMF) predict that GDP will be 3.2% by the end of 2014 with the UK out performing other big economies. Now that employment levels are rising at their fastest pace for some years it won’t be long before the spare capacity in the economy is used up. Staff shortages will translate into higher pay. Recruitment agencies are already recording record rises in starting salaries for new employees.

Sadly, the sting in the tail is for employees. The first sign of inflation-busting pay will be an indicator of economic health and a trigger for higher interest rates. 

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Julia Hanna


Read more from Julia Hanna

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