I have noticed paranoia on wage rises a d their impact inflation reaching the media this morning. The Resolution Foundation would appear to wish to cement their right wing credentials by opining on it in the Guardian. The Telegraph's business news splashed in the issue. This is the consequence if new data from the ONS.
It was, therefore, good to see some sense in this issue coming from investment advisers Hargreaves Lansdown, where Sarah Coles, head of personal finance, had this to say in a press release I was sent this morning.
It pays to look a bit closer at wages – because while wages have risen faster than inflation for the past five months, this isn't quite as positive as it seems.
Wage rises still have an awfully long way to go to make up for the spending power we've lost over the past couple of years. They've beaten inflation slightly for five months, but they had been growing slower than price rises for a full 18 months. This time last year, total pay was down 4% in a year, and the OBR expects living standards in the coming financial year to be 3.5% lower than their pre-pandemic level.
These wage rises aren't smoothly distributed either, with wages in the financial and business sectors up 8.3% and manufacturing 7.4%, compared with construction at 5.2%. It's also worth bearing in mind that inflation isn't being felt equally. Food inflation was still running at 10.1% in October. The lower your income, the bigger the proportion of it you spend on essentials like food, so the harder this hits. It means lower earners are still struggling disproportionately.
And worryingly, we're not making up ground as quickly as we were. These wage rises have been pretty lumpy, and an awful lot of them were back in the summer, when wages finally rose for the public sector. After falling dramatically behind private sector pay for the preceding two years, they made up for a chunk of this lost time in one big hit this summer – with annual wage growth for the public sector peaking in June-August at 12.5%. When you look at wage growth more recently, it's nowhere near as promising. If you were to compare wage growth to the previous quarter and then annualise that, they'd be up just 4.2% - behind inflation again.
She is spot on. Real wages have not recovered from the impact of profiteering driven inflation as yet. As a result we are still seeing a shift in reward in society from working people to companies, landlords and banks. To suggest that wage rises must now stop is madness: until the balance is redressed working people have the right to expect above inflation pay rises.
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YES. Whenever this number (change in average earnings) is released we need to be given where real earnings in absolute levels are (versus some sensible starting point – eg. pre-covid).
It is also a year-on-year change which means that the change in the number depends as much on what happened in 2022 as in 2023.
Personally, as it is a quarterly release I would prefer it given as a quarter-on-quarter number with seasonal adjustments.
Lies, damn lies and (poor/abused) statistics……
As a worker I fully agree.
It is interesting how much Hargreaves Lansdown sees the bigger picture that our dogmatic politicians do not see – that everyone’s wages is someone else’s wages – possibly Paul Krugman’s greatest contribution to economic discourse.
The bigger picture is that the percentage of GDP that goes to wages has dropped over the last 50 or so years and teh distribution of those wages has become increasingly unequal.
We could significantly improve most peoples pay by reducing profits and spreading the wages bill more evenly.
“Real wages have not recovered from the impact of profiteering driven inflation as yet”.
Thinking about this specific blog and the Hargreaves Lansdown analysis set me thinking about how to track the fundamentals over, say the last 30 years. The way out I sought was to examine a graph of Wages as a percentage of GDP. I have been unable to find that graph on ONS or Statista. Perhaps either you Richard, or someone from the well-informed and numerate readership of the Blog can help. Perhaps my intution is not the best way to llok at this; but I feel there is something important to be gleaned from such an appraisal, however it is precisely framed; because the BoE is applying heavy punishment on everybody, on the basis there is a huge problem with wage inflation; that only they and the Government (whose Rwanda policy rules them out as well informed about anything) seem able to see. The facts should speak – and speak directly, and decisively; and so far, they don’t.
This was from the TUC but out of date
https://www.tuc.org.uk/sites/default/files/tucfiles/TheGreatWagesGrab.pdf
The ONS data is supposedly here https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/labourcostsandlabourincomeuk/2022#:~:text=The%20UK%20labour%20share%20of,consecutive%20year%20to%20reach%2060.0%25.
Thanks, Richard. The TUC graph is the most useful because it gives the long-term trend line, and therefore context. This shows the Thatcher transformation; wages fall from 58%/59% to 52% over her period in office. That is a huge fall; and catastrophic for equality above all; ironically. Unfortunately it stops in 2008; the point when the Thatcher era fallacy met its nemesis in inevitable financial collapse. The ONS information offered does not give the trend line, nor is the data complete enough either to draw the approximate trend line freehand from inspection, or calculate statistically the regression line of best fit.
Clearly 2008-2023 contains the financial crash, flatlining economy, Brexit, pandemic, Ukraine war, energy crisis, supply issues and a global migration crisis focused on Europe; a really complex mixture; and one in which there are clearly huge consequent distortions (of uncertain continuity): but a wages/GDP figure now around 60%, with a fifteen year gap in the data, and little interest in interrogating the issues.
Shouldn’t the BoE have all this front-and-centre in its communications, to provide explanation and justification, in depth for its extremely vague, badly made case for swinging increases in interest rates? We are entitled to expect that the BoE will provide a rigorous, thoroughly worked through, analytically comprehensive, detailed, communicable case for a policy based on controlling wage inflation.
I have asked the TUC if they mught update this
Excellent idea – and effective, Richard.
Nevertheless, it doesn’t say much for the independence of the ONS that they do not provide this information as a matter of course; or if they do, make sure they communicate it to the public effectively – because without question this data provides critically important information on the distribution of the economy’s resources to the country’s stakeholders that the public is entitled to know before they choose to elect anybody: every elector is a stakeholder, and needs to know where political policy is directing resources, and to whom.
We need to see this information pushed up the political agenda; rather than leaving the road clear to the bottom-feeding peddlers of the ‘tax and spend’/’national debt is a sin’ guff.
My investigations. Suggests that this is the best ONS data there is – and it is dubious, as you note
Well, this discussion just makes the situation not merely worse, but absurd. We are pushing up interest rates, and we do not really know a) how reliable the wages data is b) the GDP data; and c) whether the critical trend data is either available, or accurate, even if it is available, somewhere? And has the BoE provided the essential information, and we have all missed it? Or are they failing to provide essential public information? Are we supposed to believe their “independence” entitles them simply to move interest rates on the basis of data on public income, that the public are not even entitled to see?
To give you an indication of this. The ONS literally have no clue how many self emplpoyed people there are in the UK, or what they really earn. Let’s be honest, HMRC only know a little more and then long after the event – and both massively underetsimate fraud. HMRC reckon ,ore nthn 40% of the self employed understate their earnings, but I suspect they underetsimate by how much by some way. In oyjer words, for maybe 5 million people earnings data is just guess work.
There might be a problem in the graph of Wages as a percentage of GDP: the frequent changes and use of estimates in the constituent data of GDP. They may not be significant in any given year, but might have significant impact over a long period.
The wages data is little better – the self employed data is nonsense
5m self-employed seems to represent about 15% of the total number in the UK, who are in work; that is not an insignificant number, statistically. More pressure is required to be exerted on the BoE to cough-up the precise data, and the detailed worked through analysis (actual workings included), to justify the interest rate policy based on wage inflation. Just what is it they are using, and just how well can they support its accuracy; and they really need to demonstrate its accuracy, not just take some ill-defined data for granted.
Prima facie; as it stands this is just another fine mess the government and its Central Bank have conjured between them. Have the BoE actually done rigorously verifiable work, or have they just cobbled a case by following the precedence of the US Fed; by rote, on the basis that wherever the Fed leads Britain is bound, inevitably to follow: one way or another, whether willingly or not?
Oddly enough, MPs pay did seem to rise in line with inflation, but no other public sector workers.
Quite so Ian. How did that happen? Oh yes: they, and they alone, got to vote on it. But just a minute, aren’t they supposed to be looking after the interests of all their constituents during a period of high inflation? Don’t their above-inflation increases add to said inflation while so many of their constituents are suffering real income losses? And that respect they’re supposed to be held in – what are the chances of that now? A ‘factory-reset’ of the electoral system has never been more necessary.
Wage rises are also worrying the banking communtity in the Eurozone. The response would seem to be in line with what passes for thinking in the ECB:
“Despite the “positive surprise” of last week’s inflation numbers, policymakers “can’t declare victory,” said ECB Vice President Luis de Guindos. Like fellow Governing Council members, Guindos highlighted the danger of wage fluctuations again fanning inflation at the start of 2024.