Summary of the editorial from IDS Pay Report 994, February 2008

Pay pressures persist despite uncertain economic outlook

Turning to the IDS Pay Databank, the latest figures show that despite – or perhaps because of – the uncertain economic outlook, upward pay pressures remain in play. When we took an initial look at January 2008 settlements, at the turn of the year, the median for the three months to January had increased to 4 per cent, up from around 3.5 per cent, where it had been for most of 2007. This sharp rise in the median took place against a backdrop of high inflation, and continued strong economic performance in key sectors such as manufacturing, transport and the utilities.

We had anticipated, though, that the median might come back down again once we had collected more January awards. However the latest figures show that the upward pressures on pay settlement levels continue to have greater weight than factors that might lead to pay pressures easing. One part of the economy in which settlement levels are relatively high is road transport. Here, high increases have been awarded – particularly to drivers – to help with recruitment and retention, and also to compensate for legal restrictions on working time. Driver shortages persist, but in the South East the situation has improved markedly on the previous year. This may be due to the greater availability of staff, including skilled migrants from other EU countries, in the region.

Upward pay pressures are also reflected in the latest figures for overall earnings growth under the Government’s Average Earnings Index (AEI), which we report on page 28. Unusually, earnings growth for the public sector picked up significantly in the year to November, the reasons for which relate to late settlement of major pay reviews covering local government and NHS staff. However, the pick-up in the whole economy figures, after having been more subdued recently, is not coming wholly from the public sector. On the non-seasonally adjusted series, including bonuses, utilities shows the strongest earnings growth by sector, at 12.2 per cent in the year to November. The wholesale trade shows strong growth at 7.2 per cent in the same period. Chemicals and textiles are at 4.8 per cent each, and construction and transport and communications are not far behind at 4.6 per cent respectively.

... the full editorial can be read in IDS Pay Report 994