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The Resolution Foundation Earnings Outlook

A look beyond the headline data on the forces behind current developments in pay, how the fruits are shared, and the short- and longer-term drivers of earnings growth

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What's happened:

The earnings breakdown

Median employee earnings

Real pay growth has been helped by low inflation. It has also been boosted by a compositional shift, with both the public and private sector rates currently lower than the headline.

All worker average earnings

An enduring squeeze on self-employed earnings means the gap between average weekly earnings for all workers and employees has persisted since 2012.

Earnings decomposition

The compositional effect on average weekly pay has risen again. The boosting effect of compositional changes is now close to its long-term norm.

Pay rises

The typical real hourly pay change for employees staying in work over a year has risen strongly to 3.0%, its highest level since at least 2006.

Earnings inequality

Hourly pay inequality between the upper-middle and lower-middle (r75:25) has been falling, with a sharper decline in inequality between the top and bottom (r90:10).

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What’s around the corner:

Pay pressures and slack

Unemployment by duration

The unemployment rate continues to fall, and is now only 7% above its post-2000 low-point. Long-term (+6 months) unemployment is falling but still well above its low-point.

Underemployment

Underemployment (net hours desired by those in work as well as the unemployed) has been falling steadily for more than two years. It remains 40% above its post-2000 low.

Job-to-job moves

Job-to-job moves, which are a key mechanism of pay progression and can reflect worker confidence, have picked up slightly. They remain 33% below their post-2000 peak.

Migrant job entry

Employment from abroad expands labour supply, dampening pay’s sensitivity to falls in domestic slack. The share of job entries made up by migrants has flattened.

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What’s in the pipeline:

Long-term labour market health & efficiency

Workforce participation

Boosting participation is key to full employment (although it can constrain pay growth in the short term). The 18-69 participation rate has risen very slightly to a new high-point.

Labour productivity

Labour productivity is the main long-term driver of real pay. Growth has stagnated after modest (below trend) increases, due to weak output over the winter months.

Training intensity

Training can boost individual productivity and may reflect employer confidence. ‘Off-the-job’ training rates are again falling steadily, continuing a long-term downward trajectory.

Graduates in non-graduate roles

Grads in non-grad roles reflect mismatches between qualifications and jobs, and may constrain productivity. The rate of established grads in such jobs is rising, but has slowed.

PDF Briefing

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RF’s quarterly earnings outlook four page briefing paper.

Read past briefings

PDF Scorecard

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Spotlight

A tale of two labour markets

Stripping out the role played by ultra-low inflation, underlying (nominal) wage growth has remained fairly muted given labour market slack was falling rapidly in 2015. Here we speculate on why this might be the case, by differentiating between what we term the ‘dynamic’ and ‘static’ parts of the jobs market.

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All Data Spreadsheet

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