Alastair Hatchett | 17 Aug 2021

Growth in private sector earnings hits 10.1%

The annual rate of growth in average weekly earnings in the private sector rose to 10.1% in the three months to June 2021, compared to 8.2% in the three months to May 2021. For the economy as a whole, the annual rate of growth in June was 8.8% on the total pay measure and 7.4% on the regular pay measure, which excludes bonuses.

The annual growth rate has been boosted by the fall in earnings in the spring and summer of 2020, when earnings were affected by the coronavirus pandemic. The lower ‘base’ for the 2020 figures has provided a boost to the 2021 figures. Even allowing for this ‘base effect’, the growth in average weekly earnings is remarkably strong in 2021. Some of this is due to compositional effects (see below), but the economic recovery and a sharp increase in working hours is also having an effect.

In finance and business services, the annual rate of growth in the three months to June was 12.0%, up from 10.2% in the three months to May. In manufacturing, average earnings growth was 7.1% in the three months to June, up from 5.2% in the three months to May. In construction, the rate of growth in average earnings was 14.3% in the three months to June, compared to 10.0% in the three months to May and 4.9% in the three months to April.

In the wholesaling, retailing, hotels and restaurants sector, the annual rate of growth in average earnings was 11.2% in June, compared with 8.9% in May and 5.5% in April. Within this sector, the sub-sector of accommodation and food services showed earnings growth at 13.2%, up from 5.2% in May, which was the first positive growth since last autumn. 

While private sector earnings growth has rebounded strongly, the rate of growth in the public sector dropped back to 3.0%, down from 4.0% in the year to May. For much of the past year average earnings growth in the public sector was ahead of that in the private sector. That relationship was reversed in last month’s figures and the gap has widened in the latest set of figures.

The ONS stresses that that the rate of growth in average earnings has been boosted by two temporary factors. One has been a fall in the number and proportion of lower-paid jobs in the economy, as parts of the service sector were affected by the pandemic and its associated economic impacts, but that effect is now diminishing. More important is the ‘base effect’ of lower earnings in the spring and summer last year producing a higher reading this year.

In its latest release the ONS estimates that if temporary effects are discounted, then the ‘underlying rate’ of increase in average earnings is between 3.5% and 4.9%. Last month the ONS estimated this ‘underlying rate’ to be between 3.2% and 4.4%, so clearly the ‘underlying’ rate has increased. It would be very interesting to know how underlying rates of growth vary by sector. For example, the sectors with the steepest decline in earnings last year were construction and wholesaling, retailing, hotels and restaurants. The finance and business services sector barely saw negative earnings, yet earnings growth there is now at 12.0%. Much of that increase is due to real growth in both salaries and bonuses, as well as from base effects and compositional changes.