National Minimum Wage

Chapter 1: The Economic Context to the October 2011 Upratings
1.25 In fact, in the early months of the year the medians did indeed centre on 2.5 per cent, but
from April 2011 they had again widened to 2.0-2.5 per cent, depending on the pay data
provider. There was no prolonged upturn in three-month settlement medians in the year to
September 2011 and no return to anything approaching real growth in basic pay levels.
1.26 Finally, we looked at average earnings trends. We used three official data sources to shed
light on how wages have changed over time – the Average Weekly Earnings (AWE) total and
regular pay measures; the National Accounts compensation of employees, and wages and
salaries series; and the Annual Survey of Hours and Earnings (ASHE). AWE is the most timely
earnings series as it is released monthly, two months after the survey date. As such, it is the
preferred measure of short-term earnings movements produced by ONS. Earnings are
measured as the total wage bill divided by the number of employees. The series for
compensation of employees, and wages and salaries are derived from a similar data source
to AWE and are available quarterly. ASHE records the pay of individuals in April each year and
is considered by ONS to provide the best source of structural earnings information. ASHE
provides detailed information on hours and earnings by certain characteristics such as age
and gender. It also has better coverage of small firms than the other earnings series,
however, it is only available annually and is usually released about six months after the
survey date.
1.27 Our focus here is on changes to AWE total pay as the regular pay measure is similar to pay
settlements. AWE total pay is shown for the whole economy and public and private sectors
in Figure 1.5 along with the rate of RPI inflation. The data for the three months to November
2010 showed whole economy total pay growth of 2.1 per cent compared with the same
period a year earlier, with the public and private sector rates of increase closely in line. Again
we noted that these aggregate figures hid a high degree of variation in the rates of earnings
growth in individual sectors and industries. OBR’s 2.2 per cent earnings growth forecast for
2011 as a whole suggested little change in the prevailing whole economy rate, although at
that time the median of independent forecasts was slightly higher at 2.6 per cent. It was our
view that the forecast range indicated a subdued picture for earnings growth in 2011 and, at
least until late in the year, further large falls in real wages. We said, however, that this
outcome depended on the interplay between several factors which, on balance, we judged
might lead to a slightly higher rate of earnings growth than indicated by the forecasts.
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