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