Regional distribution of earnings in the UK: 2017

• In 2017, the largest difference in the proportion of employees earning around the National Living Wage (NLW) was between London (5.9%) and Northern Ireland (13.1%).

• Wage stickiness (0.0% nominal growth) was experienced by 14.2% of employees in London, 13.4% of employees in the North East, North West, and Yorkshire and The Humber, 13.8% of employees in the East and West Midlands and 13.4% of employees in the South East, South West and East of England in 2017.

The headline earnings distribution in Chapter 1 of the compendium shows some important characteristics of the experience of the UK as a whole, but there are notable differences across regions. This article uses the Annual Survey of Hours and Earnings (ASHE) to analyse the variation in earnings levels, earnings growth and distributional outcomes across regions and countries in the UK.

Distribution

The regional distributions of earnings are explored in Figures 1 to 4. For comparison purposes, London is included in each of the English regional charts as London diverges from the trend experienced by most regions.

Figure 1 provides insight into the earnings distributions for the constituent countries of the UK. Northern Ireland had a large spike of 13.1% of employees earning £7.70 (within plus or minus 20 pence of the National Living Wage (NLW)), higher than any other country or region of the UK in 2017. Scotland has the lowest density (8.2%) of employees that earn near the NLW compared with the other countries, but the density is not as low as that of London.

Figure 2 shows the differences in the distributions of real hourly earnings between the selected regions of the UK. All distributions are clustered around the NLW in 2017, with a higher share of employees concentrated within 20 pence plus or minus NLW at £7.68 in the South West (9.7%) and East (9.7%) compared with the South East (7.5%) and London (5.9%). Generally, a lower proportion of employees earned higher wages (above £15.12 an hour) in the South West and the East of England than in London and the South East in 2017.

Figure 3 shows a clear difference in the hourly earnings distributions of the Midlands and London in 2017. The proportion of employees earning the 2017 NLW of £7.50 differs with 5.9% of employees in London earning around the NLW (£7.68), compared with 12.4% of the employees in the East Midlands, and 11.5% of the employees in the West Midlands. The share of employees earning wages greater than the NLW declined rapidly in the Midlands, but remained steadier in London.

Figure 4 shows that the North followed a similar earnings distribution to other regions in the UK in 2017. The distribution of earnings in the North were concentrated around the NLW (within plus or minus 20 pence): 11.0% of the employees in the North West, 11.2% of the employees in the North East and 11.8% of the employees in Yorkshire and The Humber. Generally, a greater share of the employees in London earn approximately £14.82 and above when compared with northern regions.

The earnings distribution for each of the regions shown in Figures 1 to 4 follow the characteristic trend introduced in Chapter 1 of the compendium: positively skewed and centred around the 2017 NLW rate of £7.50 an hour. The modal distribution for every region in 2017 was around the 2017 NLW of £7.50. However, the main difference between regions was the proportion of employees earning the modal wage. London is used in the English regional graphs for comparison purposes. It has a consistently higher proportion of employees earning higher wages and a lower proportion of employees earning around the NLW than other regions. The steadily falling share of employees earning higher wages is indicated by the long, thinning right-hand tail of each distribution. Relatively few jobs were paid less than the NLW (including employees aged under 25 years earning alternative minimum wages) as suggested by the left-hand tail.

Growth

Analysis of the growth of earnings across regions provides further insight into the distributional outcomes for employees. Figures 5 and 6 show the distributions of growth in real hourly earnings in 2017, grouping the areas presented in Figures 1 to 4 into larger regions.

Figure 5 shows that most regions of England had a similar trend in the growth distribution with the modal real wage growth rate at around negative 2.5% (0.0% nominal growth) in 2017. Wage stickiness was experienced by 14.2% of employees in London, 13.4% of employees in the North East, North West, and Yorkshire and The Humber, 13.8% of employees in the East and West Midlands and 13.4% of employees in the South East, South West and East of England in 2017, as wages had a delayed response to macroeconomic changes such as the inflation rate.

Figure 5 also shows the proportion of employees who received increases in their earnings in line with the 2017 NLW change of 1.5% in real terms. The proportion of employees who experienced the rate of increase was highest in the North East, North West, and Yorkshire and The Humber and the East and West Midlands, and lowest in London and the South East, South West and East of England. This is expected, given Figures 1 to 4 showed a higher proportion of employees earning the NLW were located in the the North East, North West, Yorkshire and The Humber, and the East and West Midlands and a lower proportion of the employees in the other regions.

Figure 6 shows variations in the distributions of earnings growth among the countries. Wage stickiness and the delayed response to macroeconomic changes are shown by the proportion of employees experiencing 0.0% nominal wage growth and negative 2.5% real growth. Around 13.0% of employees in Wales, 12.9% of employees in England, 16.1% of employees in Scotland and 12.7% of employees in Northern Ireland experienced stagnant wages in 2017.

Figure 6 also shows peaks in the proportions of those experiencing earnings growth in line with the 2017 NLW increase of 1.5%. Northern Ireland had the highest proportion of employees experiencing growth in line with the NLW increase at 11.7%, followed by Wales (9.6%), Scotland (8.7%) and England (8.6%). Given Figure 1 showed the region with the highest proportion of employees earning the NLW in 2017 to be Northern Ireland, it is expected that Northern Ireland would be the region with the highest proportion of employees experiencing growth in line with the NLW.

An alternative visualisation of the distribution of real earnings growth can be shown using cumulative percentage frequency charts. Figures 7a and 7b show the cumulative distributions of growth in real hourly earnings for employees in London and Northern Ireland in 2011, 2016 and 2017. These regions have been selected as they have the least and most employees earning the NLW respectively.

Figures 7a and 7b show the characteristic trend introduced in Chapter 1 of the compendium, with fewer employees in both London and Northern Ireland experiencing a pay decrease or freeze in real terms in the year to April 2016, compared with the years 2011 and 2017. The year 2011 saw the fewest number of employees in either region experience positive pay growth in real terms. Figures 7a and 7b show that the growth in earnings improved to 2016 (as represented by the curve shifting rightwards), and worsened to 2017 (represented by the leftward shift of the curve).

The figures highlight wage stickiness as shown by the spikes in the proportions of those experiencing real wage growth of around negative 3.7% in 2011, negative 0.7% in 2016 and negative 2.5% in 2017. Wage stickiness in 2011 may be partially attributed to the pay freeze for public sector employees that was announced in the 2010 Budget. Figures 5 and 6 further illustrated the 2017 wage stickiness.

In 2011, the median real wage growth rate (note that this is a different concept to the growth in the median) for employees in London was negative 1.1%, which was 0.5 percentage points higher than the median real wage growth rate in Northern Ireland. Over time, the median real wage growth rates appear to converge. In 2016, the median real wage growth rates were 1.7% in London and 1.8% in Northern Ireland and in 2017, they were 0.4% in Northern Ireland and 0.3% in London.

Figure 8 shows that the lower and upper quartiles real wage growth rates followed a similar trend to the median real wage growth rate for the selected regions. As shown in Chapter 1 of the compendium, throughout the economic downturn and until 2011, real wage growth rates followed a decreasing trend, before increasing until 2015 (both lower quartiles and London median) and 2016 (both upper quartiles and Northern Ireland median). More recently the real wage growth rates have followed a decreasing trend again.

For both regions, the lower quartiles real wage growth rates are very similar and are negative each year as wages have been decreasing on the year prior. For both regions, the lower quartile real wage growth rate was lowest in 2011 during wage stagnation in the economic downturn and highest in 2015 post recovery.

The median real wage growth rate tracks the lower quartile real wage growth rate closely from 2010 onwards, and fluctuates between negative 2.0% and positive 2.4%.

The upper quartile shows the greatest divergence between real wage growth rates. For both regions, growth in the upper quartile was highest in 2016.

Further analysis on the distribution of earnings by employment and employee characteristics using Annual Survey of Hours and Earnings (ASHE) data is contained in the compendium.

Survey details and basic quality information can be found in Chapter 1 of the compendium.