Week 42, 2011: UK Real Average Wage

Summary: In his analysis of the outlook for the UK economy this week, the Governor of the Bank of England, Mervyn King, said that the fact that wages weren't being pushed upwards showed that inflation had not yet reached a critical point. In light of that, we decided to look at how real wages had changed over the past ten years.

What does the chart show? The black line is the seasonally adjusted average wage for the whole economy, adjusted for inflation (by the RPI measure, excluding indirect taxes), and indexed so that the average for the year 2000 is 100. The red and blue lines are the same thing, but for specific sectors rather than the whole economy; the red line representing the business and financial services sector, and the blue line representing the construction sector.

Why is the chart interesting? As you can see from the chart, Governor King was right that real wages are, in general, falling. In fact, average earnings are back to where they were in July 2002 in real terms.

The two specific cases of financial services and construction have been picked out for different reasons. Earnings in the construction sector experienced a boom in July 2007, around the time of the peak in total average earnings, and remained high well after earnings elsewhere started to decline. However, construction wages crashed at the beginning of 2010 and have now returned to the levels last seen in Spring 2001.

The business and financial services sector, on the other hand, rose very much in line with average earnings, but have not experienced much, if any, decline since 2007. But before the protesters outside St Paul's Cathedral get too excited, it is worth pointing out that the only other group to have experienced a similar stability in real wages has been the public sector.