Pay deals hit eight-year high of 3.5%
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Industrial relations context The opening weeks of 2007 have been marked by trade union calls for pay deals to keep pace with headline inflation.
Average earnings growth remains stable Headline average earnings growth remained stable for the three months to December 2006, despite upward movement in pay settlement levels.
Headline data: Pay awards shoot up to 3.5%
The IRS measure of pay awards - the midpoint in the range of basic pay deals - rose to 3.5% in the three months to 31 January 2007, its highest level since November 1998, according to our latest provisional analysis.
This latest finding represents a significant move from the 3% benchmark level at which pay awards have stuck since April 2003, with the exception of a short-lived move upwards to 3.1% in December 2004. Moreover, this is the sharpest increase in our headline measure recorded since October 1997, when successive increases in retail prices index inflation also pushed the median to 3.5%, after being parked at 3% for 18 months.
Both the upper and lower quartile measures of basic pay settlements - the cut-off points for the bottom and top 25% of deals - have shifted upwards in the three months to the end of January. This means that 50% of all pay awards now stand between 3% and 3.9% - compared with between 2.5% and 3% this time last year. A closer look reveals that 86% of the basic pay awards settled in the three months to January 2007 are worth 3% or more, illustrating the extent to which the pattern of lower pay awards seen during 2006 has been reversed. Notably, our current sample of pay awards comes overwhelmingly from the private sector, with very few public sector deals settling at this time of year.
As always, our findings are provisional and may be revised over the coming months as more pay awards are settled. The IRS pay databank contains details of 238 basic pay awards settled in January 2006, compared with our current total of 78 for the three months to January 2007, so only about one-third of the settlements we expect to collect have been added so far.
The movement in our headline measure of pay awards confirms our prediction that successive and substantial increases in RPI inflation to December 2007 would feed through to higher pay awards (see 2006 pay awards: 3% dominates). It will have come as some relief to the Bank of England's monetary policy committee that headline inflation rose by 4.2% in the year to January 2006, down by 0.2 percentage points from the previous month. However, the time lag between RPI inflation and its impact on pay deals means that previous increases in the headline measure are likely to continue to influence pay awards settled in the first four months of the year, when fewer than three-quarters of pay awards are traditionally settled.
The pay bargaining calendar - facts and figures IRS research reveals the busiest months in the bargaining calendar.
Inflation Report Visit the Bank of England website to read the February 2007 inflation report.
Inflation Latest data on inflation from HR & Compliance Centre's key economic indicators service.
The opening weeks of 2007 have been
characterised by a renewed militancy over pay among unions in both the public
and private sectors, including Amicus, Unison, the Transport and General
Workers'
January 2007 saw high-profile disputes in the public and private sectors in which the perceived gap between pay and the cost of living loomed large. British Airways agreed a two-year deal to head off TGWU-organised industrial action. The deal being put to union members covers around 14,000 cabin crew, and is worth 4.6% (December 2006 RPI plus 0.2 percentage points) in the first year from February 2007. In the public sector, the PCS claimed it had mobilised more than 200,000 civil servants in a one-day national strike on 31 January in protest at below-inflation pay rises, proposed job cuts and outsourcing. The strike was followed by a two-week overtime ban.
Average earnings growth remains stable
The most recent labour market data from the Office of National Statistics revealed that earnings growth remained subdued at the end of the 2006 calendar year. Whole-economy average earnings growth was 4% in December 2006, down from 4.1% the previous month, with no sign of any upward impact from early bonus payments. Average earnings growth excluding bonuses was also down by 0.1 percentage point, to stand at 3.7% in December. City bank Lehman Brothers commented on the figures: "Policymakers will likely remain concerned that evidence of a pick-up in wage settlements will begin to feed into earnings numbers in the new year, but ex-bonus earnings growth of below 4% year on year provides a reasonably benign starting point."
