Low and High Pay in the UK James Brennan and Tim Butcher (Low Pay Commission) Presentation to the Labour Market Statistics User Group 20 March 2012

Overview Earnings distribution Low and high-paid jobs? How have earnings changed over time? The role of the minimum wage

The distribution of annual earnings is similar to weekly earnings Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) 2007 methodology, April 2011.

Distribution of hourly earnings is different to that of annual and weekly earnings Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) 2007 methodology, April 2011.

Hourly earnings are heavily skewed with a cut-off at the minimum wage Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) 2007 methodology, April 2011.

The cut-off was not as sharp prior to the introduction of the minimum wage Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, April 1997.

Where are high and low-paid jobs?

Public sector workers are more likely to be high-paid than low-paid but are even more likely than in the private sector to be neither Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) 2007 methodology, April 2011.

The high paid are much more likely to work in large firms. Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) 2007 methodology, April 2011.

Who are high and low-paid workers?

Low-paid workers are more likely to be women working part-time… Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) 2007 methodology, April 2011.

Few high paid workers are under 35 but over half of low-paid workers are Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) 2007 methodology, April 2011.

How have earnings changed over time?

Pay growth since 1975 The pay of the highest decile has increased from £1.97 an hour in 1975 to £24.91 in 2011, an increase of nearly 1200% In contrast, the pay of the lowest decile increased from £0.73 an hour to £6.25, around 762% RPI inflation increased by about 616% over the same period The minimum wage has more than maintained pay in the bottom decile since it was introduced in 1999

Wage growth stronger for the highest paid since the mid 1970s Inflation was 616% Source: LPC estimates based on New Earnings Survey, 1975-1997; Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, 1997-2004; ASHE including supplementary information, 2004-2006; and ASHE 2007 methodology, 2006-2011.

Pay growth since 1998 The minimum wage has more than maintained pay in the bottom decile since it was introduced in 1999 The pay of the highest decile has increased from £15.13 an hour in 1998 to £24.91 in 2011, an increase of about 68% The pay of the lowest decile increased from £3.69 an hour to £6.25, around 70% RPI inflation increased by about 50% over the same period

Between 1999 and 2011, the adult NMW has grown faster than both average earnings growth and price inflation Source: LPC estimates based on ONS data, AEI including bonuses (LNMQ), 1999, AWE total pay (KAB9), 2000-2011, RPI (CHAW), 1999-2011, and CPI (D7BT), 1999-2011, monthly; and GDP (YBHA), 1999-2011, quarterly, seasonally adjusted (AWE, AEI and GDP only), UK (GB for AWE and AEI).

A squeezed middle since 1997 but real wage growth for all RPI inflation 50% Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, 1997-2004; ASHE including supplementary information, 2004-2006; and ASHE 2007 methodology, 2006-2011.

Inequality at the bottom end fell after 1998 and stabilised at the top after 2002 Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, 1997-2004; ASHE including supplementary information, 2004-2006; and ASHE 2007 methodology, 2006-2011.

A similar picture among men Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, 1997-2004; ASHE including supplementary information, 2004-2006; and ASHE 2007 methodology, 2006-2011.

And women Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, 1997-2004; ASHE including supplementary information, 2004-2006; and ASHE 2007 methodology, 2006-2011.

The 90/10 ratio also appeared to peak in 1998 (2002 for men) but rose again last year Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, 1997-2004; ASHE including supplementary information, 2004-2006; and ASHE 2007 methodology, 2006-2011.

Earnings grew faster for those at the top between 1992 and 1997 Source: LPC estimates based on New Earnings Survey, 1992-1997.

For men…. Source: LPC estimates based on New Earnings Survey, 1992-1997.

And for women Source: LPC estimates based on New Earnings Survey, 1992-1997.

But a change occurred after the introduction of the NMW for all Source: LPC estimates based on Annual Survey of Hours and Earnings, standard weights, 1997-2004.

For men …. Source: LPC estimates based on Annual Survey of Hours and Earnings, standard weights, 2004-2011.

And for women Source: LPC estimates based on Annual Survey of Hours and Earnings, standard weights, 2004-2011.

And continued after 2004 Source: LPC estimates based on Annual Survey of Hours and Earnings, standard weights, 2004-2011.

For men Source: LPC estimates based on Annual Survey of Hours and Earnings, standard weights, 2004-2011.

And women Source: LPC estimates based on Annual Survey of Hours and Earnings, standard weights, 2004-2011.

The recession led to a squeeze on earnings in the lower middle Source: LPC estimates based on Annual Survey of Hours and Earnings, standard weights, 2007-2011.

Conclusion Earnings have grown faster in the upper half of the earnings distribution over the whole period since 1975 Inequality increased between 1975 and 1998 The introduction of the NMW appears to have had a major effect Between 1997 and 2011 wages grew faster at the bottom than elsewhere But it was the middle that has been squeezed