Summary of the editorial from IDS Pay Report 979, June 2007

Are migrant workers reducing pressure on wages?

A number of economists have taken the view recently that wage pressures are ‘benign’, in part because the supply of migrant workers, especially from Eastern Europe, has increased, taking some of the heat out of the labour market. This, so the argument goes, has reduced UK-based employees’ ability to negotiate pay increases. On the surface, it seems like a plausible enough argument, but is it correct?

There are two issues here. The first involves the character of current wage pressures. Some commentators often struggle to extend their language when it comes to pay. Settlement levels are described as either ‘inflation-busting’ or benign, with nothing in-between to describe the usual, more complex reality. Recently, inflation has been running at its highest levels since the early 1990s. These higher levels of inflation have affected wage-setting behaviour. At the start of the year, when the RPI rose to over 4 per cent, the IDS median for pay settlements across the whole economy rose sharply from 3 to 3.5 per cent, and it has remained there since. This is in line with recent historical experience, as shown in the graph below, when settlements have remained on average about half a percentage point above inflation, apart from brief periods when the RPI has risen above the level of pay awards.

... the full editorial can be read in IDS Pay Report 979