Average weekly earnings in Great Britain: August 2021

Other commentary from the latest labour market data can be found on the following pages:

• Labour market overview: August 2021

• Employment in the UK: August 2021

• Vacancies and jobs in the UK: August 2021

• Earnings and employment from Pay As You Earn Real Time Information, UK: August, 2021

• Annual growth in average employee pay is being affected by temporary factors that have inflated the increase in the headline growth rate; compositional effects where there has been a fall in the number and proportion of lower-paid employee jobs, therefore increasing average earnings; and base effects where the latest months are now compared with low base periods when earnings were first affected by the coronavirus (COVID-19) pandemic.

• Growth in average total pay (including bonuses) was 8.8% and regular pay (excluding bonuses) was 7.4% among employees for the three months April to June 2021, however, since this growth is affected by compositional and base effects, interpretation should be taken with caution.

• Last month we published a blog: How COVID-19 has impacted the Average Weekly Earnings data; it explains the complexities of interpreting earnings data in the current climate.

Average weekly earnings for total pay was estimated at £576 and for regular pay £541 in June 2021. Figure 1 shows that average weekly earnings have steadily increased, with the exception of the early months of the coronavirus (COVID-19) pandemic.

The rate of annual pay growth for total pay was 8.8% and regular pay was 7.4% in April to June 2021. This strong growth is being affected by base effects and compositional effects; you can find out more in our blog: Beware Base Effects. As such, average pay growth rates have been affected upwards by a fall in the number and proportion of lower-paid jobs compared with before the coronavirus pandemic and by the base effects where the latest months are now compared with low base periods when earnings were first affected by the coronavirus pandemic.

In real terms (adjusted for inflation), total and regular pay are now growing at a faster rate than inflation, at positive 6.6% for total pay and 5.2% for regular pay. Average real pay growth rates are also affected by the compositional and base effects in the same way as nominal pay, and should be interpreted with caution.

Interpreting average earnings - base and compositional effects

Interpreting average earnings data is difficult at the moment, and last month we published a blog: How COVID-19 has impacted the Average Weekly Earnings data that explains the complexities of interpreting these data at the moment. The blog highlights different approaches that can be taken to estimate an underlying rate, while explaining there is no simple answer. In particular, there are temporary factors that we refer to as base and compositional effects, that have increased the headline growth rate in earnings above the underlying rate.

The base effect refers to the comparison of the latest months with the low base periods of April to June 2020, when earnings were affected by the coronavirus pandemic and negative pay growth rates were seen. The blog explains that there are a number of ways you can try to strip out these base effects, but there is no single method everyone would agree on. We have tried a couple of simple approaches. Neither approach is perfect: the first requires an estimate of what would have happened without the pandemic, and the second assumes that wage growth was constant over the last two years, which we use to generate a range for the base effect.

The composition effect is where pay growth has been affected by a changing composition of employee jobs, which has increased average pay and needs to be considered when interpreting average pay growth. This is explained further in the Measuring the data section.

Latest data show the compositional effect is approximately 1.1%, compared with approximately 1% before the pandemic affected the workforce. To take into account the compositional effect that was present before the pandemic, this 1% is subtracted from the latest compositional effect of 1.1%. This therefore shows that the net impact of recent job losses is to increase the estimate of average pay by approximately 0.1%, so is now similar to pre-pandemic levels.

This month's and last month's compositional effect is much lower than previous months, as it is not constant over time. We are now comparing the composition of employees with a year ago, when we saw the greatest fall in employees early on in the pandemic. As we progress, the compositional effects are already in the base period, so the impact will naturally be smaller. Other things being equal, this compositional effect should fall over time, and could even go into reverse.

Latest figures show that for April to June 2021, the regular earnings growth rate is 7.4%. Using the same two methods set out in the blog last month we estimate that the base effect will reduce the regular earnings growth rate by between 2.4 and 3.8 percentage points. In addition, as we say, we estimate the compositional effect at 0.1 percentage points above pre-pandemic levels, so we also subtract that. This would give an underlying regular earnings growth rate of between 3.5% and 4.9%. Given the uncertainty around this range, interpretation should be treated with caution.

Our calculations of an underlying rate are there to help users understand base and compositional effects, but there remains a lot of uncertainty about how best to control for these effects, so they need to be treated with caution.

In addition, and discussed in previous releases, the pattern of pay growth is also affected by the proportion of employees who are furloughed, and the extent to which employers have topped up payments received for those employees under the Coronavirus Job Retention Scheme (CJRS). HM Revenue and Customs (HMRC) published Coronavirus Job Retention Scheme statistics on 29 July 2021, indicating that 6.8 million people were on furlough at the end of June 2020, compared with 1.9 million people at the end of June 2021.The lower proportion of workers on furlough has contributed towards the strong growth when comparing pay in June 2021 with June 2020.

This months HMRC's Earnings and employment from Pay As You Earn Real Time Information, UK: August 2021 publishes alternative metrics of average pay growth to provide more insight on pay growth.

Sector and industry

Average total pay growth for the private sector was 10.1% in April to June 2021, while for the public sector it was 2.8%. Prior to April 2021, the public sector had stronger growth, but this month the year-on-year comparison with a low base period has meant the private sector now shows stronger growth.

All sectors saw positive growth, including all the industry groups within each sector. This includes the accommodation and food service activities industry (13.2%), which has now seen positive growth over the past two months.

Average Weekly Earnings (AWE)

Average Weekly Earnings (AWE) is the lead monthly measure of average weekly earnings per employee. It is calculated using information based on the Monthly Wages and Salaries Survey (MWSS), which samples around 9,000 employers in Great Britain.

The estimates are not just a measure of pay rises. They do not, for example, adjust for changes in the proportion of the workforce who work full-time or part-time, or other compositional changes within the workforce. The estimates do not include earnings of self-employed people.

Estimates are available for both total pay (which includes bonus payments) and regular pay (which excludes bonuses). Estimates are available in both nominal terms (not adjusted for inflation) and real terms (adjusted for inflation).

Estimates of pay growth are also published using HM Revenue and Customs' (HMRC's) data in Earnings and employment from Pay As You Earn Real Time Information, UK: August 2021.

The HMRC estimates are presented in median pay-terms, but they also include mean pay as does AWE. There are some differences between the sources, most notably that the HMRC estimates include any redundancy payments that are made through payroll. Further detail is provided in a Comparison of labour market sources, published 11 December 2020.

Bonus

A bonus is a form of reward or recognition granted by an employer. When an employee receives a bonus payment, there is no expectation or assumption that the bonus will be used to cover any specific expense. The value and timing of a bonus payment can be at the discretion of the employer or stipulated in workplace agreements.

Consumer Prices Index including owner occupiers' housing costs

As of 21 March 2017, the Consumer Prices Index including owner occupiers' housing costs (CPIH) became our lead measure of inflation. It is our most comprehensive measure of UK consumer price inflation.

Monthly Wages and Salaries Survey

The Monthly Wages and Salaries Survey (MWSS) is a survey through which we collect information on wages and salaries. It is distributed monthly to around 9,000 employers covering around 12.8 million employees.

A more detailed glossary is available.

The survey response rate was 78%, only slightly lower than the 83% target in more typical months.

Compositional effect

The change in pay growth has been affected by a changing composition of employee jobs, where we have seen a fall in the number and proportion of lower-paid employee jobs. This changing composition naturally increases average pay and needs to be borne in mind when interpreting average pay growth. Changes in the profile of employee jobs in the economy will affect average pay growth; a decrease in employee numbers in jobs that have lower pay can have an upward effect on average pay, and the other way around.

As such we can consider the compositional effects from three angles:

• Labour Force Survey data highlight a decrease in the number of part-time jobs (which have lower pay) and jobs in lower-paying sectors

• changing distribution of jobs between industries, provided in Dataset EARN02: Average weekly earnings by sector, effecting average pay growth by 0.5%

• HM Revenue and Customs (HMRC) Earnings and employment from Pay As You Earn Real Time Information, UK: November 2020 inflows and outflows data indicate a fall in new entrants to the labour market, who are lower-paid than average

These three compositional analyses are not mutually exclusive, and do not necessarily consider all the compositional effects that impact average pay. However, they do indicate that a proportion of estimated pay growth is because of recent changes in employee job profiles. We plan to conduct more detailed analysis on the impact of compositional factors.

More information on the compositional effect the data is available in our previous version of this release.

Sampling variability for average weekly earnings single month growth rates in percentage points is available in our previous version of this release.

For more information on how labour market data sources are affected by the coronavirus (COVID-19) pandemic, see the article Coronavirus and the effects on UK labour market statistics, published on 6 May 2020. This article details some of the challenges that we have faced in producing estimates at this time.

Our article Comparison of labour market data sources, published 11 December 2020, discusses some of the main differences between our data sources.

More information on measuring the data is available in our previous version of this release.

Information on the strengths and limitations of this bulletin is available in our previous version of this release and in A guide to labour market statistics and A guide to sources of data on earnings and income.