Saturday, 23 February 2013

UK Average Weekly Earnings – February 2013 Update

Over the past couple of weeks the mainstream media seem to finally have discovered that in real inflation adjusted terms average earnings are falling and that this is putting a squeeze on household finances.  They’re a little behind the curve given we’ve been talking about it here since April 2010 with the last regular update here.  This doesn’t really surprise me given that the Press today rarely published any investigative journalism instead choosing to publish whatever press release a political party or corporation is trying to push that day.  I guess it keeps running costs down but I digress...  Let’s not follow the same path and instead run some analysis to understand what is really going on.

Let’s firstly look at the nominal data. The Office for National Statistics reports that the Average Weekly Earnings for:
  • The Whole Economy including bonuses and allowing for seasonal adjustment is £472.  This is stagnant against last month and up £6 (1.3%) year on year.
  • The Private Sector earns less than the average Whole Economy at £468 per week.  Private Sector Earnings have also gone nowhere since last month and are also up £6 (1.3%) year on year.
  • The Public Sector earns more than the Private Sector at £489 per week and is also doing better when it comes to securing pay rises.  Month on month we see an increase of £1 (0.2%) and year on year an increase of £10 (2.1%).  Given that we are supposedly living in times of austerity, albeit a version where the government spends more than they did in the prior year, I’m amazed that the Public Sector is seeing year on year increases that are more than 50% higher than that of the Private Sector.

Unfortunately, while we were seeing those nominal annual increases of 1.3%, 1.3% and 2.1% respectively inflation according to the Retail Prices Index (RPI) was 3.1% during the same period.  This means that whether you are working in the Private or Public Sector it is likely you are taking a real terms pay cut. I know I am.  At my company’s last pay review I received a grand total increase of £0.  Meanwhile I know that essential items that I buy are increasing in price.  I’m continuing to learn frugal habits but I’m also sure that prices rising combined with stagnant earnings is putting pressure on my savings rate which at last check was only 55% of gross earnings against a target of 60%.  I’m working hard to find spending savings to get that back on track but given I’ve been at it since 2007 there is not a lot more to find. 

The long term erosion of spending power can be best seen with a couple of charts.  The first chart takes the RPI and Average Weekly Earnings and then converts them into an Index that starts in 2000 with a value of 100.  Whenever the gap between Earnings and the RPI is increasing earnings power is increasing.  The chart shows this stopped happening around 2008 meaning we have been seeing spending power erosion since then.  Today the spending power of the whole economy is back to levels last seen in May 2001.

Index of UK Whole Economy, Private Sector and Public Sector Average Weekly Earnings vs Retail Prices Index (RPI)

Click to enlarge

My second chart then converts Weekly Earnings into Annual Earnings and then corrects for Inflation to give Real UK Average Annual Earnings. 

Index of UK Whole Economy, Private Sector and Public Sector Average Weekly Earnings vs Retail Prices Index (RPI)
Click to enlarge

This chart highlights an interesting phenomenon.  Look at how since 2009 Public Sector Earnings have diverged from Private Sector Earnings (as highlighted above).  This was caused by a large portion of the UK Financial Sector becoming Public Sector workers in late 2008.  If we filter that out we end up with my third chart which shows that while the Public Sector excluding Financial Services on an annualised basis is still doing better than the Private Sector to the tune of £468 it’s not the £1,092 that the original data suggests.

Index of UK Whole Economy, Private Sector and Public Sector ex Financials Average Weekly Earnings vs Retail Prices Index (RPI)
Click to enlarge

As always do your own research.

1 comment:

  1. Hi,
    Great charts!
    I've spent the whole evening trying to construct something similar, but couldn't find inflation adjusted average annual salary figures.
    Exhausted, I googled images instead, and your charts were exactly as I imagined the trends on my charts would look like.
    Would you mind sharing the excel working behind your jpegs, so that I can understand your approach and work back your findings against the source data?
    I'm not trying to infringe your copywrite, an these wouldn't be for publication.
    Thanks in advance