How pay figures add up to a dismal picture for UK households

(c) Sky News 2017: <a href="http://news.sky.com/story/how-pay-figures-add-up-to-a-dismal-picture-for-uk-households-10834591">How pay figures add up to a dismal picture for UK households</a>
 

Are real wages now shrinking? Well, at the risk of sounding like an economist: yes and no.

On the face of it, the story is straightforward.

The latest numbers show that average weekly earnings rose by 2.2%.

The latest inflation numbers - as measured by the Consumer Price Index (CPI) - shows prices rising by 2.3%.

Given inflation is higher than earnings, that means that in real terms (in other words adjusted for inflation), wages are falling by 0.1%. Right?

Well, not necessarily.

Because those earnings figures are measured over a three month period, whereas that 2.3% inflation number is a single month's data.

Take three months of inflation data and place it alongside the earnings numbers and you'll find that in real terms earnings are rising, not falling, by 0.1%.

So on that basis, while real earnings are at their weakest since 2014, they are not negative.

However, there is another way of skinning the same figures, which is to compare one month's CPI to one month's average earnings.

On the one hand, the single month earnings stats are that bit more volatile; on the other hand these numbers are at least a little more timely.

:: Living standards squeeze returns

When you look at the figures through this prism, real earnings are well into negative territory: earnings of 1.9% in February, vs CPI of 2.3%. So a 0.4% fall in real earnings.

But we're not finished yet.

All the numbers above exclude bonuses (since bonus payments make the numbers swing about wildly).

But if you include bonuses real earnings don't look so tough after all: up by 0.6% in the year to February (single month) and 0.2% if you look at the three month figures.

I could go on.

What about if you used the Retail Price Index as your inflation index?

Real wages would have been falling for the last two months.

What about real wages in the public sector? (falling); and real wages in the private sector? (still rising).

If you're a services sector worker like a hairdresser, average real wages are (across the sector) rising by a rapid 4.8%; if you're a professional worker or scientist they're falling by 2.6%.

Finally, it's worth remembering that all of the above is a little bit out of date anyway.

The latest earnings figures are for a three month period that started in December.

Most economists think that this month - April - inflation will have risen yet higher, meaning the chances are that most of these measures, when they finally get round to reflecting this very month, will show real earnings falling.

You get the idea.

But the overarching message here is far more straightforward than all of the above.

Whether they are technically falling ever so slightly or rising ever so slightly, our real take-home wages are being squeezed rapidly.

Back in mid 2015 they were rising by 2.5% - the fastest rate since 2007.

That pay growth has since collapsed - however you skin the numbers.

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