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Friday, 29 October, 1999, 15:27 GMT 16:27 UK
Earnings - why do they matter?
wages p.a. graphic
The average earnings index is the most timely and comprehensive measure of pay for employees in Great Britain.

The figures are seasonally adjusted and released with the employment and unemployment statistics.

Earnings data always relate to the month previous to the unemployment data.

They are published around six weeks after the end of the month to which they relate, so March figures are released in May.

How are they calculated?

Calculating increases in earnings is far more complicated than measuring increases in the prices of goods.

This is because it is difficult to track movements in the settlement and payment of wage increases and changes in the composition of the workforce.

Each month, the Office of National Statistics conducts a survey of 8,000 companies and organisations in both the public and private sector.

The sample covers around 40% of employees and when grossed up to represent the rest of the economy, represents around 90% of employees.

The figures are seasonally adjusted to allow for temporary factors such as industrial disputes, delays in implementing pay settlements (if wage negotiations were longer than usual), lump sum payment of arrears and delayed bonus payments.

The seasonally adjusted earnings index is volatile because of differences that occur in the timing of payments from year to year.

Further adjustments are therefore made to reach an underlying rate of average earnings on a three month basis.

The underlying index accounts for:

  • Composition of the workforce: this adjusts for movement between the full and part-time sectors and between the various occupations covered by the data.
  • Hours worked: this mainly applies to overtime working which accounts for the majority of the variation in hours worked on a month to month basis.
  • Bonuses: this is the principal factor that compensates for other variations in pay on a month to month basis, but absence from sickness is also taken into account.

The bigger picture

Given all the complications, what can the figures tell us?

It is not worth putting too much emphasis on month by month moves, so looking at the bigger picture is the favoured approach.

Looking at the underlying indices for manufacturing, production and service sectors gives an idea of where the wage pressures are coming from.

The service sector accounts for around two thirds of the earnings index, so any movements are important.

Despite all their best efforts, the statisticians cannot account for all the extraneous factors. The most recent example of this has been with the payment of bonuses in the financial services sector, which has tended to boost earnings around the financial year end.

There has also been some evidence that the adjustment process fails to fully account for summer holidays and a tendency for earnings to fall around this time.

Overseas comparisons

The complex nature of the average earnings index means there is no comparable index internationally.

For overseas comparisons, it is better to look at raw unadjusted data for pay settlements and to bear in mind that this does not offer the whole picture with respect to growth in earnings.

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