Average weekly earnings in Great Britain: July 2021

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

• Labour market overview: July 2021
• Employment in the UK: July 2021
• Vacancies and jobs in the UK: July 2021
• Earnings and employment from Pay As You Earn Real Time Information, UK: July 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 so increasing average earnings; and base effects where the latest months are now compared with the start of the coronavirus (COVID-19) pandemic when earnings were first affected and pushed down.

• Growth in average total pay (including bonuses) was 7.3% and regular pay (excluding bonuses) was 6.6% among employees for the three months March to May 2021, however since this growth is affected by compositional and base effects, interpretation should be taken with caution.

• Our latest blog explains the complexities of interpreting earnings data in the current climate.

Average weekly earnings for total pay was estimated at £574 and for regular pay £540 in May 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 7.3% and regular pay was 6.6% in March to May 2021. This strong growth is being affected by base effects and compositional 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.

Our latest blog explains the complexities of interpreting these two effects on the high pay growth rates we are seeing in the latest periods.

In real terms (adjusted for inflation), total and regular pay are now growing at a faster rate than inflation, at positive 5.6% for total pay and 4.9% 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.

Base effect and furlough

Pay growth is being affected by the base effect, where the latest month is now compared with the low base periods of April 2020 and May 2020 when earnings were first affected by the coronavirus pandemic and negative pay growth rates were seen for several months. Average total pay growth for May 2021 compared with May 2020 was 8.6% for total pay and 7.3% for regular pay. Average total pay growth for April 2021 compared with April 2020 was 8.6% for total pay and 7.5% for regular pay, which feeds into the strong growth rates we see for March to May 2021.

Looking at levels before the coronavirus pandemic we can compare May 2021 with May 2019 where average total pay growth was 7.1%, so lower than the growth when comparing with May 2020 (8.6%). For regular pay growth comparison with both periods was similar, at 7.1% when comparing May 2021 with May 2019 and 7.3% when comparing with May 2020.

In addition and discussed in previous releases, the pattern of pay growth is 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 indicating that 8.4 million people were on furlough at the end of May 2020, compared with 2.4 million people at the end of May 2021.

Compositional effect

In addition, this strong pay growth has been affected by a changing composition of employee jobs, which naturally increases average pay and needs to be considered when interpreting average pay growth - this is explained further in Measuring the data.

Latest data show the compositional effect is approximately 1.4%, compared with approximately 1% before the pandemic affected the workforce. To take into account the compositional effect present before the pandemic, this 1% is subtracted from the latest compositional effect of 1.4% to show that the net impact of recent job losses is to increase the estimate of average pay by approximately 0.4%.

This month's compositional effect is much lower compared with 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, so as we progress the compositional effects are already in the base period so the impact will naturally be smaller.

In addition, our estimate of compositional effect uses data from the Labour Force Survey which was recently re-weighted and because of this re-weighting has slightly reduced the compositional effect for the latest periods - this is explained further in Measuring the data.

Sector and industry

Average total pay growth for the private sector was 8.1% in March to May 2021, whereas for the public sector it was 3.9%. 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 (5.2%) which saw positive growth for the first time since September to November 2020.

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 as 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: May 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, impacting average pay growth by 0.6%

• 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, but 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.

The Labour Force Survey was re-weighted this month to address the increase in non-response bias created by coronavirus (COVID-19) and the suspension of face-to-face interviewing. The new weighting methodology covers periods from January to March 2020 to March to May 2021. Figure 4 shows the impact of the re-weighting on the compositional effect.

The earlier months showed very little change because of the reweighting but the last five months saw a bigger impact of around 5 percentage points difference due the re-weighting slightly decreasing employment levels and changes in occupation group.

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

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

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

An article published 11 December 2020 compares our labour market data sources and discusses some of the main differences.

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

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