Temporary Rise in Average Wages, but Underlying Wage Growth to Stay

Temporary rise in average wages, but underlying wage growth to stay around 2½ per cent

Main points

• The labour market is continuing to recover from the pandemic, with employment, vacancies and wages all increasing. The recovery driven by improved confidence and the reopening of sectors of the economy is broad-based across age groups, industries and regions.
• NIESR’s wage tracker predicts that average weekly earnings (AWE) growth will accelerate from 4.2 per cent in the first quarter to 8.1 per cent in the second because of base and compositional effects. Removing those effects, underlying earnings growth is only 2½ per cent in the second quarter.
• Public sector employment rose throughout the pandemic, in particular because of hiring in the National Health Service (NHS).
• The possibility of a third wave represents a material risk to the labour market if it were to delay - or reverse - the lifting of restrictions.

“Delay to reopening arts and travel while phasing in employer contributions will be a new test of labour market resilience. Some of the improvements in employment and wages may stall if the UK can’t reopen its economy fully soon.”

Cyrille Lenoël
Senior UK Economist, NIESR