From the TUC

What’s happening to pay?

15 May 2015, by in Labour market

Bringing back to real pay growth is a necessary condition for achieving sustained and balanced economic growth that gives people at work both a fair reward and the spending power necessary to keep business growing. 

CPI inflation is currently at zero, which at least gives some employees a temporary respite, although below-target inflation is the sign of a weak economy if it persists for many months.

According to ONS, average weekly earnings have increased by 1.9% during the past year, but some sectors are doing better than others. As there has been a long-running and unfair squeeze on public sector pay, it only increased by 0.9% during the past year compared with a 2.7% rise across the private sector.

However, there is another story behind the headline increase in private sector earnings. Skilled manual jobs are still seeing below-average pay growth (manufacturing +0.7%, construction +1.7%), whilst in contrast pay in finance has increased by 3.1% in the past year

One slightly positive trend is that there has been  a modest degree of rebalancing in retail, hotels and catering. Earnings grew by 3.1% in these sectors, as employers started to feel some pressure on recruitment and retention. Whilst we should remember that this magnitude of increase only means a 20p per hour rise for a minimum wage worker, every little certainly doesn’t hurt.

In terms of future prospects, the round up of city forecasts collected by the Treasury suggests that whole year inflation will be around 0.8% CPI (1.7% RPI) and whole year earnings growth 2.5%. Meanwhile, a survey by XPert HR suggests that large private sector employers expect to see wages rise by 3.0% this year.

My view is that for a healthy economy we should get to a place where earnings consistently grow at about 2.0% above RPI inflation. To achieve this, the government needs to pursue an active labour market policy. One task will be to boost successful industries and create more highly skilled well paid jobs. The other task should be to bring the social partners together on a sector-by-sector basis to find ways of improving productivity, with an agenda that would include better work organisation and investment.

Getting pay right will also rely on unlocking the squeeze in the public sector, which is having negative effects on economic demand as well as impinging on the delivery of services that underpin economic growth.