From the TUC

Paying up: who’s been getting pay rises, who hasn’t, and will that change?

26 Mar 2015, by in Economics

Guest post written by Laura Gardiner of the Resolution Foundation and Abigail McKnight of the LSE.

Britain’s wage squeeze has been well documented. But the public narrative on pay trends has recently suffered from some confusing – and at times highly inaccurate – claims in relation to pay rises for those who’ve held onto jobs, as we explain in a new Resolution Foundation-edited book Securing a Pay Rise.

Fortunately we are approaching clarity on the subtle but important differences between headline statistics on typical pay trends for stable employees. If we want to understand typical pay rises, we must use the median change in pay, not the similar-sounding change in median pay, which gives a consistently higher number. Claims of pay rises averaging 4.1% for full-time employees who have stayed in the same job are therefore wrong and overstated.

In fact, our analysis of the median change in pay (for all employees not just those working full time) shows that in each year since 2010 the majority of those in stable employment actually experienced annual real pay cuts. As recently as April 2014 the typical experience was no real annual change in pay.

But this masks a great variety of experiences. In 2013, for example, more than one-in-five stable employees had a nominal pay cut. On the other hand, one-in-ten had a nominal pay increase above 15 per cent. This big spread in the pay rise distribution, in particular the extent and magnitude of nominal cuts, seems to hold over time. If we look at weekly pay rather than hourly the variance is even greater, as hours worked can also change from year to year.

Inevitably, some groups fare better than others. Full-time employees generally do better, as do young people. The latter is unsurprising as productivity increases and opportunities for promotion are more marked at the beginning of people’s careers.

Experiences across different industries are relatively similar, with the main exception being the public sector. Here, those in stable employment were much more likely to get a real pay rise than private sector employees in the early years of the downturn, but less likely after 2010.

So what might this tell us about the future?

First, continuing wage restraint will limit pay rises for public sector employees. Short-term improvements in the overall pay rise position will be largely dependent on settlements in the private sector.

Second, while the likelihood of a pay rise has been very even across the wage distribution over the downturn, we expect the lowest paid to fare better in coming years if the minimum wage continues to make up some of its lost ground. Pay rises for the very lowest earners are good news, but this shouldn’t detract from the wider challenge of ensuring that more of these workers can progress out of low-paying jobs for good. We know that too few do. 

Finally, there is the broader question of how far we might expect the recovery in pay rises to go. Things have improved since 2011 (helped by falling inflation rates), but a longer-term perspective reveals that the likelihood and size of pay increases were falling even in the pre-downturn years. The challenge is therefore whether, and how, we can not only recover the ground lost during the downturn but also reverse the effects of a longer-term slowdown in pay rises.

Guest post written by Laura Gardiner of the Resolution Foundation and Abigail McKnight of the  LSE.

One Response to Paying up: who’s been getting pay rises, who hasn’t, and will that change?

  1. Roshan Verghese
    Mar 26th 2015, 11:26 am

    Authors organisations reversed?