UK Earnings Hit 11 Year High

Employment, Jobsearch, News / 12 September 2019

Wages in the UK have continued to rise in the past few months, and are now at an 11 year high. Weekly earnings are estimated to have increased by 3.7% for total pay (which includes bonuses), and 3.9% for regular pay. In other positive news, recession worries have been tempered somewhat thanks to the fact the economy grew in July by 0.3%, despite shrinking by 0.2% in the second quarter of the year.

Is the UK employment sector, and the wider economy, continuing to stave off Brexit uncertainty then? It does seem so, but there are some additional factors to consider that urge caution.

Wage Growth Analysis


Much like the wage increase reported a few months ago, there are similar considerations to be made. It’s easy to assume that because wages have risen, so has wealth. This isn’t always the case, however, as we’ll see. To start with, let’s look at the estimated rise in wages compared to the same time last year.

  • Total pay, accounting for inflation, has risen by 1.8% compared to last year.
  • Regular pay, the amount earned before any deductions are applied, has risen by 1.9% compared to last year.

Translated into actual earnings, this means that, on average, UK employees earned:

  • £505 a week in nominal terms (without adjustments for expenses, tax, and so on).
  • £469 a week in real terms.

While estimated real term weekly wages are higher than last year’s figure of £460, they are still lower than pre-recession earnings, which came to £473 per week. This means that while earnings have risen, actual take-home wages haven’t increased all that much, once expenses are deducted and inflation accounted for. Having said that, even a small rise in earnings is no bad thing overall.

An employee holds a handful of £20 notes.

 

Additional Contributing Factors


In terms of the public sector, wage growth has been affected by the NHS pay rise that was introduced this April. Due to backdating, this year’s figures actually included two NHS pay rises instead of one. This has, in turn, bumped up average public sector earnings for the most recent stats. In regards to private-sector earnings, the raising of both the national and living wages has also helped to increase wage averages, especially for lower earners.

The final thing to consider when looking at the recent wage growth figures is that they are not only affected by actual pay rises. According to the ONS, the figures can also be swayed by changes in paid hours, as well as in the nature and structure of the UK workforce. If there are higher paid jobs, for example, they will help contribute to an upward trend in earning rates. It’s important to note then, that although estimated average wages have risen, this may not be applicable across all roles, sectors, and earning levels. The construction industry, for example, has seen the largest growth in average wages out of all sectors in the most recent published results.

 

Potential Long Term Problems


The fact that unemployment has continued to drop is starting to become something of a double-edged sword. The workforce is already tight, which means employers are finding it harder and harder to source skilled talent. The result has so far been a drop in hiring, and a shift in strategy by many companies to raise wages in order to increase staff retention.

The economic slowdown, both globally and domestically, is also a concern. While it looks like the UK may avoid recession for now, thanks to the small increase in economic growth during July, there is a very real possibility that the ongoing Brexit uncertainty will lead to unpredictable changes. It’s also important to note that firms facing uncertainty tend to hire employees rather than invest, as letting staff go is less costly. This has been the case over the last few years, which has led to the robustness of the employment industry so far. The potential consequences of this though, is that the if the tumultuous climate continues, rising wages and low unemployment could quickly unravel.

As has been the case for some time now regarding Brexit and the employment sector, it’s hard to predict exactly what will happen until there is some form of concrete plan in place for businesses to react to, while they still can.

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