Inflation is the rate at which the cost of goods and services have been rising over a time period – such as, this year compared to last year, or this month compared to last month. Over the year to September of this year, the inflation rate was 8.8% higher than it was last year. In practical terms this means that, on average, for every £1 you spent last September, you’re going to be spending £1.09 this year, for the same goods or services. This means that if you are working, in order to be able to buy the same amount of goods, your pay must increase by at least the same level as inflation. Where the inflation rate outstrips wage increases, you lose money in real terms. That is, you are not able to consume at the same level as you had done previously, because, simples, your earnings buy you less.
Two weeks we had our annual release of data captured in the Annual Hours and Earnings Survey. This survey provides information about the levels, distribution and make-up of earnings and paid hours employees in all industries and occupations. This data was captured in April 2022, and so while it may not be the timeliest, it is really useful because of the amount of detail it gives on the earnings of different groups of workers and because it allows us to dig in depth to how earnings have been changing for different groups of workers, and in turn help us understand how the recent uptick in inflation has been affecting different groups of workers differently.
In Northern Ireland in 2022 the data show that the median hourly earnings for all employees stood at £13.39, broken down for full-time and part-time employees as £14.79 and £10.65 respectively. This compares to median hourly earnings in 2021 for all employees of £12.79: £14.26 for full-time employees and £10.01 for part-time employees. In nominal terms, this means that in this year compared to last year full-time workers are earning 53p more per hour, and part-time workers 64p more.
In deciding whether or not these increases represent reasonable increases in terms of pay over the year, we might start with looking back at previous year increases. Employee earnings increased on average by 4.7% over the year to 2022. Compared to the trend over the last 15 years the represents the fourth largest annual increase in terms of the money you get from work. However, when we take into consideration the recent spike in inflation we find that we have had the sharpest decrease in real earnings in the last 15 years. This means that compared to the last 15 years and remember that includes all the years of the 2008 financial crisis, never have our earnings increases equipped us so poorly to meet the cost of living increases and in turn maintain our standard of living.
What is more, because even though there weren’t any furloughed workers in April 2022, there were in April 2021, meaning we are comparing pay in a non-furlough year to a furlough year, which will be having a positive effect on measured pay growth as workers returned to work. This, in turn, means that the actual squeeze on real pay underway in April is likely to be worse than what the data show.
A dive into the data to those with low to high earnings shows that earnings growth between 2019 and 2022 have been keeping pace with inflation in the bottom half of the earnings distribution, more so than they have been at the top. Much of the reason behind this relates to the relatively large increases in the wage floor which we have seen since 2016 as it paces to be two-thirds of the UK median.
However, we need to be cautious not to conclude from this that we need not be any more concerned with the pay of the lowest earners and that policy is doing enough to protect their living standards. The reason for this relates to the fact that many low earners are also recipients of benefits via the Universal Credit system. When Chancellor Rishi Sunak had promised to uprate these benefits in line with inflation – which meant that most working age benefits would go up by 10.1%. It remains to be seen if as Prime Minister he will stick this promise. What’s more, in any case, this would still see this element of income significantly reduced due to below-inflation increases in April this year, when benefit rates failed to keep pace with an accelerating rate of inflation.
But also, we have got to remember that the reasons why we have had strong wage growth at the bottom of the earnings distribution over the last number of years as politicians and policy makers increasingly embraced the moral imperative that work should pay and so have focused their policy interventions for the low paid on increasing the wage floor. And in this respect, the increases have been quite extraordinary.
However, we still have to remember that workers are not workers in isolation and workers live in households and it is the resources and needs of all of the household taken together which will ultimately determine their living standards. And it is for this reason why we need to be concerned with the uprate of benefits in line with inflation. Millions of working families rely not just on the earnings they obtain from work but need the benefits portion of their income just to make ends meet. To ensure that workers can just maintain their current standards of living Government must uprate benefits in line with inflation. If Jeremy Hunt as Chancellor doesn’t do that this week, yes, Government will still be able to track the moral highground that they delivered some of the sharpest increases in earnings for the low paid via the national living wage, but that does not mean it adds up to a good deal for workers.