Reporting UK average earnings growth at 4.7% is simply embarrassing

by Shaun Richards

The credit crunch put many economic measures under strain as their limitations were exposed. Now the Covid-19 pandemic has broken several of them. In fact one is so broken I will get to it before the wildly inaccurate unemployment numbers which provides something of a perspective. So let me hand you over to the UK Office for National Statistics.

Growth in average total pay (including bonuses) among employees for the three months October to December 2020 increased to 4.7%, and growth in regular pay (excluding bonuses) increased to 4.1%.

If you subject this to a basic sense test you see that an economic depression has apparently created the highest wage growth for quite some time. Indeed if we use the low level of reported official inflation real wage growth has surged to perhaps the highest level this century! Sadly it gets worse.

In real terms, average pay has rebounded from the sharp falls during early summer 2020, in December total and regular pay are at a record high.

So to fix the problem of such weak real wage growth that we had not after a decade recovered from the credit crunch inspired dip we needed an even deeper contraction? I run a polite blog so let me simply say that any basic check of reality should have stopped these numbers being produced as they are a serious embarrassment.

For December 2020, average total pay, before tax and other deductions, for employees in Great Britain was estimated at £571 per week in nominal terms. When expressed in real terms (constant 2015 prices) the figure in December 2020 was £523 per week, notably higher than the £488 per week estimated in June 2020.

Curiously they forget to report that it is also a record as it exceeds the £522 of February 2008. Only by £1 per week but a record is a record. This is not a repeated in the regular pay series.

Average regular pay was estimated at £534 per week in nominal terms. When expressed in real terms (constant 2015 prices) the figure in December 2020 was a record £489, after having fallen back to £464 per week in April 2020.

If we look at the series and the chart below is helpful. We had a fall as the pandemic hit which is logical but since then wages have simply gone through the roof.

 

The Official Explanation

This has several legs to it.

Analysis of Labour Force Survey (LFS) data highlights a recent decrease in the number of part-time jobs (which have a lower average pay), and jobs in some lower-paying occupations such as elementary occupations. …… It therefore appears that the net impact of recent job losses, when measured in terms of type of job and age profile of jobholder, is to increase the estimate of average pay by approximately 1.8%.

So 4.7% becomes 2.9%. There is another effort suggesting an effect of 0.1% which is below any likely measure of accuracy and is therefore of little use. Next comes this alternative.

This considered tenure of employees who fill the stock of jobs and suggests that a fall in new entrants to the labour market (who are lower-paid than average) has contributed to an increase in average pay, with a magnitude of approximately 1%.

The types of analysis are separate but may also be “not mutually exclusive,”. Make of that what you will.

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Let me show you the 2 surveys used. Firstly from PAYE.

 In December 2020 aggregated pay increased by 3.3% compared with December 2019.

And now suddenly it does not.

This is particularly important to consider at present because both of the two main sources of information about number of employee or employee jobs paid through payroll (HM Revenue and Custom’s Pay As You Earn Real Time Information, and the Office for National Statistics’ (ONS’s) Monthly Wages and Salaries Survey) identify a year-on-year fall of close to 2.5%.

So basic data suggesting a fall of 2.5% somehow becomes a rise of 4.7%?!

I would remind you that the numbers do not include the self-employed and the ONS survey omits any business with less than ten employees. Oh and in case you thought it might be the health industry pulling the numbers higher.

The finance and business services sector saw the highest estimated growth in total pay, at 6.8%.

That seems to make very little sense of all. But even worse is this spotted by the Resolution Foundation.

This is backed up by sectoral pay growth: in December, earnings in arts, entertainment and recreation, one of the sectors hardest hit by the crisis, had risen by almost 15% in real terms compared to a year earlier.

So the theatre’s are back open and indeed packed? Rock and pop concerts are thriving? Maybe in one of the alternate universes visited from time to time by Star Trek but not this one.

Another check we can use is the Agents report from the Bank of England which seems to be from an alternative universe.

Contacts reported that pay growth remained subdued. There were continued widespread reports of pay being frozen or settlements deferred. Bonus payments were also lower compared with a year ago. However, temporary pay cuts made earlier in the year have largely been reversed. Most contacts expected pay growth to be restrained in 2021.

Unemployment and Employment

We know that due to the impact of the furlough scheme ( CJRS) that the unemployment numbers and hence the unemployment rate do not reflect a large amount of hidden employment. So let us look elsewhere for a guide. One more realistic area is hours worked. This brought improvements on two counts.

Between July to September 2020 and October to December 2020, total actual weekly hours worked in the UK saw an increase of 53.7 million, or 5.8%, to 978.7 million hours.

Average actual weekly hours worked saw an increase of 1.8 hours on the quarter to 30.2 hours.

The release does not tell us the overall decline in numbers so let me help out. Pre pandemic we saw 1052 million hours being worked so in spite of the improvement we are still some 7% below the previous peak. Also in the last month or so we appear to have stopped improving.

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A more up to date look at things comes from the Inland Revenue tax database.

Early estimates for January 2021 indicate that there were 28.3 million payrolled employees, a fall of 2.5% compared with the same period of the previous year and a decline of 730,000 people over the 12-month period. Compared with the previous month, the number of payrolled employees increased by 0.3% in January 2021 – equivalent to 83,000 people.

As you can see this shows a still substantial decline but a more hopeful current picture as employment picks up. Also we need to note that it is “payrolled employment” so as so often the self-employed are left out.

Comment

I will come to the problems with the numbers in a moment but as far as we can tell the most up to date numbers suggest the economy has continued to recover. But sadly we still have a way to go which is somewhere between 2.5% ( payrolled employment) and 7% (hours worked) .Added to that is something we looked at in Friday from the public finances data.

self-assessed Income Tax receipts this month were £16.8 billion, £1.4 billion higher than in January last year,

That series also has its distortions so please just take it as a broad brush.

If I now return to today’s issue of average earnings. Let me introduce newer readers to my rule which is to accept official figures until they become ridiculous. Well the average earnings figures have gone beyond that, sadly. They are so bad that it is my opinion that the series should be suspended on the grounds that they are in fact actively misleading. Indeed we are in a period where it is performing badly partly because of changes recommended by some familiar people as in the Turnbull-King review was indeed Baron King of Lothbury as he is now known and this was reviewed by Dr.Martin Weale in 2009. Because you see

The previous lead measure of earnings, the AEI did not reflect changes in the composition of the workforce in this way.

Can we sing along with Moloko?

Bring it back
Sing it back
Bring it back
Sing it back to me

 

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