Pay trends in manufacturing

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EEF’s latest pay survey points to a slowdown in the pace of increase in manufacturing pay with pay deals in the three months to April hitting their lowest level since the end of 2010.

On pay at least, manufacturers appear to be have been going against trends in the rest of the economy. In 2013 and 2014 when everyone was wondering when pay growth in the UK economy would start to pick up, pay deals in manufacturing were running at around 2.5%.

And now, when whole economy pay is starting to pick up, our main pay metric shows industry employees are seeing wage growth moderate. What’s going on?

Three months average pay settlements showed a pretty uniform (and dull) 2.4 to 2.6% increase since 20131q3. At the end of last year pay settlements eased back and in the major pay rounds of January and April three-month average settlements came in at 2.2% and 2.1% respectively.     

Pay settlements in manufacturing
Source: EEF Pay Bulletin


The pay factors

A couple of factors seem to be in play.  The first is a drop in the proportion of top end settlements. A year ago, almost three quarters of pay deals were agreed at over 2% and two-thirds of those were over 2.5%. This followed a period of pay restraint and weak growth in manufacturing and higher pay increases were awarded to catch up with past pay freezes and to support skills retention. The relative importance of this factor will have diminished for many companies and this also come at a time when the inflation outlook is much weaker.

% of settlements by level
Source: EEF Pay Bulletin


However, in our April survey there has also been a notable up tick in the proportion of settlements that are pay freezes - a sharp turnaround from the declining trend seen through last year.  Some further investigation did not reveal any common themes among companies freezing pay. There were some company specific factors and some companies linked to oil and gas declining activity had enacted a freeze.

A final word on sample - our data is subject to revision as more information on pay deals across the sector emerges and we are not yet interpreting this as an early warning signal of slower wage growth in the pipeline.




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