Alastair Hatchett | 20 Apr 2021

Finance sector earnings growth at 6.3% with public sector at 5.2%

Annual growth in average employee pay continues to strengthen, according to the latest figures from the Office for National Statistics (ONS). In the year to February 2021, across the whole of the economy, total pay growth was 4.5% while growth in regular pay, which excludes bonuses, was 4.4%. The latest figures are roughly in line with the previous ones, for the year to January, when total pay growth was a little higher at 4.8% while regular pay growth was a little lower at 4.2%.

The sector with the highest rate of growth in average earnings is finance and business services where the rate in February was 6.3%, down a little on January which saw an annual rate of growth of 7.6%. Many companies cancelled or postponed bonuses in 2020 but some paid bonuses in January. These were less in evidence in February, but regular earnings growth, ex-bonuses, continued to strengthen, rising from 6.2% in January to 6.6% in the latest release.

Average weekly earnings also grew at a faster rate in the public sector where the rate rose to 5.2%, up from 4.7% in the year to January. The ONS said that this higher rate was mainly accounted for by strong growth in the health and social work sector, showing at 5.6%.

Earnings growth continues to strengthen in construction, one of the sectors worst hit by the pandemic in 2020 where growth fell back to -10.1% in Spring last year. In the year to February 2021 average earnings in construction grew by 2.7%, up from 2.5% in January.

The rate of average earnings growth in manufacturing remains modest. The growth rate in February was 1.8%, down from 2.0% in January. However, this sector also endured a difficult period in spring 2020 when the growth rate was -3.4%.

In wholesaling, retailing, hotels and restaurants the annual rate of growth in average earnings was 2.4% in the year to February, down on 3.2% in the year to January and down on the rate of 4.2% in the year to December. This sector is the largest in the economy and contains the largest proportion of lower-paid employees. Within this large sector the subset of employees in accommodation and food service activities (hotels, restaurants, pubs and cafes) saw average earnings growth slip back to -6.1%. The ONS has not produced a separate earnings growth figure for the rest of the sector but it is likely that average earnings data in supermarkets, DIY stores and pharmacies reflect the relative buoyancy of that part of the retail economy, as well as perhaps some compositional effects arising from job losses (see below).

The ONS continues to emphasise that the higher rate of growth in average earnings is, in part, driven by changes in the composition of the workforce, with a substantial fall in the number and proportion of lower-paid jobs. The ONS estimates that this change in workforce composition is adding 1.9% to the average, suggesting that the ‘underlying’ rate of growth is nearer 2.5%. This is unlikely to be similar in each sector, and indeed the fact that earnings growth in the broad retail sector has fallen represents a potential challenge to the ONS explanation Given the fact that the greatest job losses have been in this sector, we might expect the series here to keep on showing an increase. That it hasn’t, but instead is showing lower growth, is therefore a puzzle.

The pattern of pay growth was also affected by the proportion of employees on furlough, which was 19% of the workforce in mid-February 2021. And the relatively greater amount of economic activity being conducted, compared to during the first lockdown period – as evidenced by the figures on hours worked – is also part of the picture.