Don’t be bamboozled by bonuses: pay is falling

  • Total pay (including bonuses) grew 4.8% in the year to November-January and regular pay 3.8%.
  • After inflation, total pay is up 0.1%, but regular pay is down 1% (inflation over the three months averaged 4.8%).
  • This is the first time that real regular pay has fallen by 1% in a three-month period since summer 2014, and it has been falling since November last year.
  • In the public sector, total pay was up just 2.4%, compared to 5.3% in the private sector.
  • This is despite a backdrop of booming employment, and the fact that there’s now one unemployed person for every vacancy: a new record low.

The ONS has released employment and wage data for the year to November-January. Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments:

“Bumper bonuses are skewing pay figures, so on initial glance everything in the jobs market looks rosy. However, something far more worrying is lurking underneath the headline figures, because once you take inflation into account, pay excluding bonuses has fallen faster than at any time for almost eight years. Unless you’re one of the lucky few taking home a bumper bonus this winter, you’re in for a horrible battle to make ends meet this spring.

Bang in the middle of a bumper bonus season, the finance and business sectors are taking home 8.6% bumps in their pay when you include their bonuses. This is pushing the overall figures up. They’re also affected to some extent by coronavirus quirks again, because a year earlier many hotels, restaurants and shops were closed in lockdown, which is bumping annual pay rises artificially high in this sector – to 5.9% for total pay.

Meanwhile, in a world without bonuses, public sector pay is up just 2.4% – just half the average rate of inflation over the three month period of 4.8%. Manufacturing fares little better with total pay up 2.8% and construction at 2.9%.

This leaves people with a mountain to climb in finding the cash for essentials – and it’s getting steeper. Real wages are down 1% over the three month period. We’re no strangers to the falling value of wages: we suffered it for 12 years after the financial crisis, and pay only got back to its pre-crisis levels on the eve of the pandemic in February 2020. However, this time will feel far worse, because it’s set against huge rises in the cost of essentials – including energy prices – and we can’t shop around to cut the cost.

And while originally inflation was expected to peak in April, the invasion of Ukraine has raised the risk that prices will remain higher for longer. It means that previous forecasts that inflation would drop back and real wages would recover is starting to look overly optimistic. We need to be honest with ourselves about where we stand, and the steps we need to take to protect our finances. It also heaps pressure on the government to step in and alleviate some of this pressure when the Chancellor makes his Spring Statement next week.”

Other figures from the release

  • Job vacancies hit a record of 1.318 million, up 105,000 in the quarter. But the rate of growth in vacancies continued to slow.
  • The redundancy rate decreased to a record low of 2.4 per thousand.
  • Estimates for February show a record 29.7 million people on payrolls in February – up 275,000 in a month.
  • The employment rate November-January was 75.6%, up 0.1 percentage point from the previous month, but still down 1 percentage point from before the pandemic.
  • The unemployment rate was 3.9%, down 0.2 percentage points from the previous quarter, and returning to pre-coronavirus levels.
  • The number of people unemployed for over 12 months has dropped for four consecutive three-month periods.
MARCH 15, 2022
(IFA Magazine)

Story originally appeared on fca.org.uk

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