Alastair Hatchett | 16 Sep 2021

Annual growth in private sector earnings remains high at 9.6%

Growth in average weekly earnings dropped back a little in the latest official figures but remains strong overall, partly due to the effect of comparisons with a year earlier and changes in the composition of the workforce since then, but also due to the rapid reopening of the economy in the summer and responses to the various labour market challenges that have emerged.

The annual rate of growth in average weekly earnings in the private sector was 9.6% in the year to July 2021, compared to 10.2% in the year to June and 8.3% in the three months to May. For the economy as a whole, the annual rate of growth was 8.3% on the total pay measure and 6.8% on the regular pay measure, which excludes bonuses.

The latest annual rate of growth has been boosted by the previous fall in earnings in the spring and summer of 2020, when earnings growth dropped back sharply during the first coronavirus lockdown. As such, the lower ‘base’ for the 2020 figures has provided a lift to the 2021 figures. It is still the case, however, that earnings growth for much this year has been relatively strong, boosted by increased working hours, payment of bonuses delayed from the previous year, and raised salaries in response to labour shortages.

In finance and business services, the annual rate of growth in the three months to July 2021 was 12.2%, the same as for the three months to June. Last year, earnings levels in this sector only fell back by -1.1% at the low point in June 2020 so the ‘base’ effect here is really quite small. The growth rate this year is therefore strong as firms raise pay to retain staff and compete for scarce skills, combined with the restoration of bonuses, largely delayed from last year. Compositional effects may also be playing a role however, with fewer lower-paid administrative staff in the sector than before the pandemic. This will have had an upwards effect on the average here, and in the economy overall as lower-paid workers lost their jobs in hard-hit sectors such as hospitality, though the effect is waning as the economy recovers. 

In manufacturing, earnings growth was 6.9% in the year to July, down marginally on 7.0% in the year to June. In this sector earnings growth reached a low point last year of -3.4% in June 2020. In construction, the latest rate of growth in earnings was 11.8% in July 2021, compared with a low point of -10.2% in the year to June 2020.

In wholesaling, retailing, hotels and restaurants, average earnings rose by 10.1% in the year to July 2021, down from 11.2% in the year to June. In June 2020 the rate of growth in earnings in this sector was -5.4%.

Meanwhile the rate of growth in average earnings in the public sector was just 2.5% in the year to July. This is partly connected to a new policy of pay restraint and lower pay awards for many public servants. The Chancellor’s rationale for the policy was originally based on negative earnings growth figures in the private sector in 2020. Perhaps the recovery in private sector earnings growth this year will lead to some revision or relaxation of this policy.

The ONS continues to stress that the average earnings figures should be treated with caution because of the temporary factors boosting them, especially base effects. In its latest release it adjusts its estimate of the underlying rate of increase if the temporary effects are discounted. It now estimates that the underlying rate of increase in regular earnings is between 3.6% and 5.1%. If higher bonuses and labour market shortage salary adjustments are added to this, perhaps the underlying rate of increase in total pay might be somewhere between 4% and 6% overall and even higher in finance and business services.