Pay is rising, but how fast?

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EEF tracks pay deals across the manufacturing sector in our monthly Pay Bulletin. The latest report confirms a subdued trend in wage inflation with settlements averaging 1.7% in the three months to April.

There are two peak pay negotiation periods across the manufacturing sector – January and April. If history is anything to go by around two-thirds of companies will agree pay deals with their employees in the first four months of the year, which means we’ve now got a pretty good steer on what wage inflation will look like across the sector in 2016.

Pay rises

 

Most manufacturing employees are getting a pay rise this year

But almost a quarter of deals in the past three results resulted in a pay freeze

At 1.7% pay settlements are trending lower than last year’s average of 2%

 

Our latest Pay Bulletin survey shows that the majority of manufacturing employees have seen their pay increase over the past three months. The average pay award was 1.7% in the past three months, with just under a third of pay deals (covering 60% of the employees in our sample) resulting in a wage increase of between 1.76 – 2%.  

This picture was pretty consistent with official earnings data released by the ONS – which also showed a 1.7% increase in total manufacturing pay in the first three months of the year; slightly below the whole economy average.

Some forecasters - the Bank of England among them - had been expecting to see something of an acceleration in wage growth this year. In manufacturing at least, the opposite seems to be happening. Following a fairly stable period of 2.5% pay growth between 2011 and 2014, pay settlements have been drifting down to their current, subdued levels.

 

 

payapr1

 

The return of the pay freeze is playing at least some part this trend.  In the past three months the proportion of pay freezes in our survey spiked to a 67-month high. And at the other end of the spectrum we’ve also seen a bit of a pick-up in settlements over 2.5% since the start of the year. 

 

payapr2 

 

What’s affecting decisions on pay?

Simple question, but without a straightforward answer. Big influences on company pay deals this year are likely to be:

  • Low inflation – reducing bargaining power and the need to make larger settlements to maintain living standards.

  • Economic conditions – deteriorating outlook for some sectors is leading to affordability concerns around rising wage bills. The rise in pay freezes, which started at the beginning of 2015, coincides with emerging issues in oil and gas related sectors.

  • The interaction with other business costs – the on-going roll out of pensions auto-enrolment and the forthcoming apprenticeship levy, for example, may be leading companies to be cautious about locking into higher pay awards.

There are a couple of other somewhat bigger unknowns. The first is whether there is any EU referendum-effect. Are companies being more cautious because they feel they are operating in a period of heightened uncertainty? Time will tell on this question, but there aren’t really any other labour market indicators we can point to at the moment which would suggest this is having a major bearing on pay.

The second is the extent to which the introduction of the National Living Wage in April has altered the nature of pay deals. While we know that only a small proportion of manufacturers will see a direct hit from the NLW this year, it could well be leading a shift to individual pay deals rather than cross-company settlements, which our survey data isn’t quite capturing. 

We’ll be investigating this further as the Low Pay Commission are currently looking at the future path of the NLW out to 2020. If you would like to share your views with us you can get in touch with me (lhopley@eef.org,uk) or our Senior Policy Advisor (vo’keefe@eef.org.uk).

EEF members can access lots more information about pay trends in manufacturing on our website here, or by contacting our Information and Research team (research@eef.org.uk).

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This person has now left EEF. Please contact us on 0808 168 1874 or email us at enquiries@eef.org.uk if you have any questions.

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