A different spin on UK’s wage data

London: Average wages for workers in the UK who have stayed in their jobs are already growing faster than inflation, according to research. The study found that the official measure of earnings has been dragged lower by an increase in low paid employment.

The research from the Resolution Foundation think-tank explains why consumer confidence has improved so much at a time when official figures point to a squeeze on household finances. With the Bank of England waiting for wages to rise before increasing interest rates, the research suggests that the central bank might begin to raise them before the July date expected by financial markets.

The official average weekly earnings figures from the Office for National Statistics are flawed in that they do not take account of changes in the pattern of employment. If more people work part time or there are more low paid people, the statistic for wage growth would be dragged lower — even if employees were receiving above inflation increases in their pay packets.

Daniel Vernazza of UniCredit said this year that wage growth among people who had remained in their jobs was much higher than the average of all employees and suggested that the BoE “should look through the current, temporary, weakness in headline average earnings”.

The detailed Resolution Foundation study has reinforced his view, estimating that without changes to the composition of the workforce this year, the official figures would show real wage growth 0.1 per cent in the first half of 2014 rather than a drop of 0.8 per cent.

Matthew Whittaker, chief economist at the Resolution Foundation, said the research suggested that some of the causes of the “terrible wage figures”, which even showed a drop in cash wages this summer, were benign. For example, young people have found it easier to get jobs as the economy has improved.

“The speed-up in the entry of younger and less experienced employees into the workforce, who are invariably lower paid than average, has been an important drag on wages,” he said. “This downward pressure on wage growth should dissipate next year and hopefully open the way for a long overdue return to positive wage growth.”

Using the ONS’s Labour Force Survey to estimate the long term effects of the changing composition of the workforce on the average wage, the Resolution Foundation found that in 2014, a rise in full-time work and employees’ qualifications was pushing the average wage higher.

But this effect, flattering the wage statistics, was overshadowed by a fall in the number of managers receiving generally higher pay, a rapid rise in youth employment and an increase in the proportion of the workforce who were new to their jobs.

— Financial Times