National Minimum Wage

Chapter 1: The Economic Context to the October 2011 Upratings
Figure 1.8: Growth in Nominal and Real Wages, UK, 1978-2011
Change on a year earlier (per cent)
Profits
25
20
15
10
5
0
-5
-10
1978 Q3
1979 Q3
1980 Q3
1981 Q3
1982 Q3
1983 Q3
1984 Q3
1985 Q3
1986 Q3
1987 Q3
1988 Q3
1989 Q3
1990 Q3
1991 Q3
1992 Q3
1993 Q3
1994 Q3
1995 Q3
1996 Q3
1997 Q3
1998 Q3
1999 Q3
2000 Q3
2001 Q3
2002 Q3
2003 Q3
2004 Q3
2005 Q3
2006 Q3
2007 Q3
2008 Q3
2009 Q3
2010 Q3
2011 Q3
Quarter
Nominal wage growth Real wage growth (CPI) Real wage growth (RPI)
Source: LPC estimates based on ONS data, annual change in CPI (D7G7), Q1 1989-Q3 2011, and RPI (CBZH), Q3 1978-Q3 2011,
quarterly, not seasonally adjusted, UK; annual change in AEI inc bonuses (LNNC), Q3 1978-Q4 2000, and AWE total pay (KAC3),
Q1 2001-Q3 2011, monthly, seasonally adjusted, GB.
1.40 The profitability of companies is also an important factor in our deliberations. As we noted in
previous reports, the reluctance of companies to invest and rebuild stocks has led to
improved cash balances for many firms, particularly large ones, since 2008. The gross and
net rates of return on capital employment for non-oil private non-financial corporations have
also picked up in 2011 but at 11.1 per cent in the third quarter, both are below the rates
observed before the onset of recession. Gross trading profits for non-oil private non-financial
corporations picked up over the year from £49.2 billion in the third quarter of 2010 to £54.0
billion in the third quarter of 2011. Similarly, over the same period, total gross operating
surplus in the UK increased from £63.0 billion to £66.9 billion. However, as a proportion of
GDP, it has fallen from 21.9 per cent to 21.2 per cent. The wage share has also fallen as taxes
(and subsidies) have taken an increasing share of GDP. Throughout the recession and since it
ended, financial balances for private non-financial corporations have also been strong
compared with previous recessions. However, it is likely that these strong financial balances
are predominantly held by larger firms. In surveys and in evidence from our meetings with
stakeholders, small firms have indicated that they have no such headroom and that profits
have also been squeezed.
25
20
15
10
5
0
-5
-10
17