Growth in employees’ regular pay lagged 1.2% behind inflation in January to March 2022, according to official figures that highlight just how poorly wages are performing against the rising cost of living.
The UK labour market: May 2022 release from the Office for National Statistics shows that regular pay excluding bonuses grew by 4.2% in the first three months of this year, while total pay including bonuses grew by 7%.
However, when adjusted for inflation, regular wages in January to March 2022 fell 1.2% while pay including bonuses grew by just 1.4%.
Consumer prices index inflation in the year to March 2022 hit 7%. The retail prices index, which is no longer an official statistic but is still referenced by trade unions in pay negotiations, stood at 9%.
The Work Foundation warned that people in low-paid jobs were facing tough decisions and uncertainty around their living costs.
“For weeks the government has hinted at extra help to come, yet all workers will have heard this week is that they are not to ask for pay rises and that if they’re struggling they simply need to work more hours or get a better paid job,” said Ben Harrison, director of the Work Foundation at Lancaster University.
“It is vital that we see targeted support delivered now via an emergency budget. As a priority, the government must find a way to uprate benefits in line with inflation – or introduce measures to the same effect – to provide more security to those most in need.”
TUC general secretary Frances O’Grady said: “Working families deserve financial security. But millions are at breaking point as real wages plummet and bills soar.
“We need a proper boost to Universal Credit and the minimum wage to get money back into people’s pockets, and to inject much-needed demand into our economy.”
Every successive forecast to inflation seems to climb a little higher, increasing the gap between wage growth and price growth” – Jonathan Boys, CIPD
‘Driving into a storm’
Jonathan Boys, labour market economist for the CIPD, said the fact that the figures related to the first quarter of this year meant we were “looking at the economy in the rear-view mirror while driving into a storm”.
“Every successive forecast to inflation seems to climb a little higher, increasing the gap between wage growth and price growth,” he said.
“As the earnings data show, the squeeze is hitting some harder than others. The difference between total pay growth in the private and public sectors – 8.2% and 1.6% respectively – is stark. Further help from government is inevitable and this should be targeted where need is greatest.”
Boys said that if pay rises are not possible, employers should take other steps to help improve financial wellbeing.
Cost of living
“CIPD research finds that employees working in a company with a financial wellbeing policy report being more likely to feel in control of their finances. However, just 18% of organisations currently have a financial wellbeing policy.
“CIPD research also shows that organisations could make employee benefits work harder. Several so-called ‘fringe’ benefits that help offset the cost of housing, travel and childcare can be of particular value to those on the lowest incomes,” he said.
Chartered Management Institute director of policy Anthony Painter suggested that impact of inflation and falling real pay for millions would drag down economic growth, which could affect employers’ ability to hire.
He said: “Although cost of living pressures may have encouraged some workers back into the workforce – the tightness of the labour market makes it a very difficult balancing act for both employers as there is still high demand for skilled workers. If employers aren’t able to go the extra mile to support workers’ pay and conditions they may find they lose valuable staff which also increases costs in the short-term.”
Vibrant but stretched labour market
Hiring activity in the first quarter was buoyant, with both vacancies (1.29 million) and job moves (994,000) reaching record levels – indicating that the predicted “great resignation” took place.
The estimated number of employees on payrolls also hit a new record, rising to 29.5 million in April 2022.
The UK employment rate increased by 0.1 percentage points to 75.7%, partly driven by a record rise in the number of people moving from economic inactivity into jobs.
Neil Carberry, chief executive of the Recruitment & Employment Confederation (REC), said: “These figures tell the story of a vibrant but stretched labour market in the first quarter of 2022. It’s a great time to be looking for work, as there are now fewer unemployed people in the UK than there are job vacancies.
“But employment levels and hours worked are still lower than before the pandemic, as more people are not working and also not looking to. Over time, this capacity constraint can only slow growth and contribute to inflation. Business and government need to work together on ways to attract more people back into the labour market, as well as ensuring the new immigration policy addresses fundamental gaps.”
Pawel Adrjan, head of EMEA research at job site Indeed, said that employers were seeing fewer unemployed people than vacancies for the first time ever.
“While today’s update shows hiring challenges still remain, record job to job moves in Q1 showed continued jobseeker confidence, and it’s encouraging to see the record flow from inactivity, which had been ticking up due to sickness, to employment, possibly driven by cost of living pressures,” he said.