Alastair Hatchett | 15 Dec 2021

Earnings growth at 4.9% as temporary upward effects largely drop out

Average weekly earnings grew by 4.9% in the year to October for the whole economy on the total pay measure and by 4.3% on the regular pay measure, which excludes the effects of bonuses. These figures are down on the year to September when total pay growth was 5.8% and regular pay growth was 4.9%.

One of the main reasons for the fall is that the temporary factors that boosted the earnings figures over the past six months or so have largely worked their way out of the latest data, ‘although a small amount of ‘base effect’ may still be present’, according to the ONS. High growth rates in the previous months were largely the consequence of the earlier collapse in earnings during the first period of the pandemic. The year-on-year effect of a lower base in 2020 pushed up annual growth rates in 2021.

Pre-pandemic, average weekly earnings were growing at around 3% to 4%, at a time of few inflationary pressures. If the rate of growth in average earnings is now close to 5%, then this may be reflecting stronger pay pressures from labour market shortages, as well as impacts from increases in the cost of living. Indeed, average earnings growth in the year to October was 5.4% in the private sector.

Even if the trend is down, increases in average weekly earnings of this magnitude represent a significant element of ‘earnings drift’, ie a large gap between basic pay awards and the official figures on earnings. Most pay settlements have recently been in the 2% to 3% range, although there has been a growing number of higher increases, in response both to high levels of vacancies and rising inflation.

Despite the fall in the nominal figures, sectoral growth figures are all much higher than before the pandemic. The industry with the highest earnings growth remains the finance and business services sector, where the rate in the year to October was 7.7%. This stands in contrast to the growth rate in manufacturing which is comparatively low at 2.8% (though also higher than pre-pandemic levels). Earnings growth here may have been constrained by such factors as short-time working in the motor manufacturing industry caused by shortages of components.

Meanwhile, average earnings growth in construction was 5.5% in the year to October, down from a (revised) 7.1% in the year to September. In wholesaling, retailing, hotels and restaurants the rate of earnings growth in the year to October was 4.6%, down from a (revised) rate of 5.9% in the year to September. Last month the ONS said that these two sectors were those where the 2020 pandemic base effect was still showing in the data.