What’s Happening to UK Hourly Wages?
In the UK the spotlight is usually on the weekly wage measure produced by the ONS, Average Weekly Earnings. Scott Sumner tells us to focus on hourly wages. Why? I think the heart of the theory is that the hourly wage is a stickier price. Weekly wages can adjust via a change in hours, or the hourly wage rate.
In this post I’ll take a look at the hourly wage data. The ONS do not produce an “official” time series for mean hourly wages; but we can get to the data by a number of different routes:
- The Annual Survey of Hours and Earnings. This survey should provide the most reliable data for employed workers, and provides the gross mean hourly earnings (amongst others) from a survey of employers.
- The Labour Force Survey. Every quarter the Labour Market Statistics provide an update to a measure of mean gross hourly earnings (table “EARN08”) from the LFS. This data is known to underestimate the mean, it excludes workers earnings more than £100/hour.
- The monthly labour market update provides both an estimate of Average Weekly Earnings plus average weekly hours, again from the LFS. A simple matter of division should give us the mean hourly wage.
- The national accounts, combined with the Labour Force Survey. The national accounts tell us aggregate national wage income. The LFS data tells us total hours worked. From these two we can calculate mean hourly wages. I don’t know of any reason to doubt the LFS hours data. The national accounts do of course get revised. I am not sure how reliable this measure should be.
The ONS does also have an experimental Index of Labour Cost per Hour series. This data is also available from Eurostat as the Labour Cost Index. Annoyingly we are not given the underlying nominal data in either case, only the index level; I will ignore those series for this post.
This is what the four different sources of hourly wages look like:
I was pleasantly surprised that these estimates came out relatively close together; the data from the “EARN08” table (green line) is as expected an outlier.
Comparing weekly with hourly wages it does appear that a reduction in weekly hours worked in 2009 contributed to the weakness of weekly wages. Here I’ll stick with the LFS data using average weekly wages/hours as the hourly wage:
Similarly the recovery in average weekly hours since 2011 explains why weekly earnings have grown faster than hourly wages.
On the ASHE measure the average annual growth rate of gross hourly wages was 4.1% between 1997 and 2007, falling to 1.5% between 2008 and 2013. Remember that 4.1% figure when you are told silly stories about how globalisation reduced wages in Britain, and remember the 1.5% figure when you are told that inflation is the “real threat”.