Real wages growing for first time since the recession

Highlights

• Advertised salaries growing faster than inflation for first time since the financial crisis in August, with salaries increasing 1.9% from August 2013
• Total advertised vacancies rise 30% year-on-year in August, with 905,297 available advertised vacancies
• Competition for jobs falls to post recession low, with 1.06 jobseekers for every advertised vacancy in August, compared to 1.99 in August 2013
• Every UK region sees annual wage growth, for the first time since the financial crisis
• Manufacturing and construction industries leading sector wage growth
• Unprecedented job vacancy growth in August 2014 – a seasonally slow month

Real wages grew for the first time since the recession in August, as year-on-year advertised salary growth outpaced the rate of inflation, according to the latest UK Job Market Report from Adzuna.co.uk

Average advertised salaries rose to £34,463 in August, up 1.9% from £33,873 in August 2013, compared to a CPI inflation rate of 1.5% over the same period. In real terms, advertised salaries climbed £149 over the last twelve months – the first growth in real terms since the financial crisis.

At the same time, the UK’s job creation continued to soar, with advertised vacancies rising 30% year-on-year from 698,862 in August 2013 to 905,297 in August 2014. Based on current growth forecasts, there are now projected to be over 1 million vacancies available by the end of 2014, according to Adzuna data.

The ratio of jobseekers to vacancies declined from 1.99 in August 2013 to 1.06 in August 2014. On a monthly basis, the ratio fell 0.8 percentage points from 1.14. If this rate continues into September, next month may see more vacancies than jobseekers for the first since the recession.

Table 1:

“News of real wage growth will further fuel interest rate speculation. With the Bank of England stressing it is waiting for a pick-up in wages, this significant news could push forward the notion of an interest rate rise before 2015. As real wages look set to continue growing over the coming months, expect the calls for an interest rate rise to get louder.”

Wage growth spreading across the nation

For the first time since the recession, advertised salaries rose year-on-year in every region of the UK in August. This included London, which witnessed its first annual wage growth in a year, with advertised salaries rising 0.6% from £42,086 in August 2013 to £42,321 in August 2014.

While the capital has been slow to catch up, the salary gap between the highest and lowest paid regions has closed considerably over the past year. The gap between London, the highest paid region, and Northern Ireland, the lowest paid, has shrunk by £1,718 since August 2013. London’s sluggish wage growth has allowed other regions to close the UK pay divide.

Table 2:

On the news that now all UK regions are experiencing wage growth, Andrew Hunter comments: “The rebounding UK economy is now providing a recovery felt by the many, not the few. As the pay gap between London and the other regions of the UK shrinks, employers in the capital are beginning to slide up salaries, to ensure continued access to the best staff. Historically, the bright lights of the city have attracted a host of hopeful job hunters to London. But as further opportunities for work open up elsewhere, and the cost of living stays stuck at an all-time high in the capital, employers have to raise the salary bar to stay attractive.

“The next milestone for the UK to cross will be when all regions begin to see a real wage rise. Workers in both London and Scotland are yet to experience an above inflation salary increase. Wages may be climbing year-on-year, but workers in these areas are yet to feel the weight of that extra cash in their pockets.”

Skills shortage fuelling salary hike in production sectors

Manufacturing and Trade & Construction were the sectors with the highest salary growth over the past twelve months, with wages rising 11.6% and 9.2% year-on-year in August respectively.  Advertised salary growth in Manufacturing outpaced the rate of inflation by 10%; a sign that non-service based industries are benefiting the most from national wage growth.

For areas such as Construction, this wage growth fits the growing evidence showing that a skills shortage is taking effect. Demand for construction and manufacturing projects has boomed in recent years, after the financial crisis hit output significantly.  Both employment and wages continue to blossom for these industries, with recent research showing that the number of bricklayers claiming job seekers allowance has fallen from 15,000 to 1,750 in just five years[1].  A substantial increase in employment figures has been mirrored by wages as bricklayers and other building workers see a large wage increase as companies compete for their work.[2]

However, with Customer Service and IT Jobs also among the top sectors for wage growth, there are signs that the wider economy is benefiting too.

Table 3: Biggest improvers – Job sector by average salary

Commenting on the performance of sectors, Andrew Hunter explains: “The resurgence of manufacturing and construction industry wages is a true sign that country’s economic growth is well and truly back on track. If we take construction as a bellwether industry for the British economy, than these figures are certainly impressive.”

“There could be further wage growth for the Customer Service industry over the next few years, with both George Osborne and Ed Milband announcing rises to the minimum wage.

“However, the good news must come with a note of caution. Behind these impressive salary figures is an economy desperately in need of more skilled workers. If we aren’t careful, we could see a skills shortage begin to cause real pain for economic growth. This needs to be addressed from the ground up, by encouraging more of our youth to study relevant qualifications, and providing more opportunities to learn on the job through apprenticeships and internships. That would also lend a helping hand to our young workforce – many of whom are still struggling to secure their first job.”