Why 2014 hasn’t been the year of the pay rise: the impact of the changing make-up of the workforce on wages: summary

Document type
Summary
Author(s)
Gardiner, Laura; Whittaker, Matthew
Publisher
Resolution Foundation
Date of publication
12 November 2014
Subject(s)
Employment
Collection
Social welfare
Material type
Reports

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Pay growth fell to a new low of below one per cent in 2014. Increases to average weekly earnings (AWE) have consistently fallen below inflation, resulting in a six-year pay squeeze. The accompanying slide pack explores the factors behind this lack of growth.  It identifies compositional change in the workforce as the main driver, with three factors of particular importance. These are:

  • Occupational changes - a sharp decline in employees in managerial roles alongside growth in lower-paying caring jobs and elementary occupations.
  • The age mix: a strong increase in employment among younger workers helped reduce youth unemployment but dragged down overall earnings.
  • Job tenure: as employment surged, the number of people in their job for less than a year grew strongly. These typically lower-paid employees pulled down average pay.

The real-terms pay growth that would exist in the absence of the recent compositional drag would be modest at best, and appears to have slowed over the course of the year.  The key to ending the pay squeeze in 2015 will be the willingness and ability among employers to return to above-inflation pay increases.

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