1. The Impact of the NMW and Recession on Pay in Britain: Has Pay by Gender Been Affected? Presentation to the ONS Labour Market Statistics User Group Conference 25 March 2013 James Brennan and Tim Butcher

2. 2 Overview Growth of Earnings and Productivity –Divergence from 1990 Earnings growth since 1975 –Growth between 1975 and 1997 –Growth since 1997 Earnings since the onset of recession Focus on Differences by Gender –Earnings growth across time and across the earnings distribution –Pay gaps

3. 3 How have earnings changed over time?

4. 4 Real wages rose roughly in line with productivity until 1990 Source: LPC estimates based on ONS, output per filled job (LNNN), Average Earnings Index (LNMQ), Average Weekly Earnings (KAB9), and RPI (CHAW), 1964-2012.

5. 5 Productivity has fallen since the onset of recession but real wages have fallen further Source: LPC estimates based on ONS, output per filled job (LNNN), Average Earnings Index (LNMQ), Average Weekly Earnings (KAB9), and RPI (CHAW), 1964-2012.

6. 6 Wage growth much stronger for the highest paid from 1975 to 1997 Source: LPC estimates based on New Earnings Survey, 1975-1997.

7. 7 The NMW was introduced in 1999 and has since 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), 2000-2012, RPI (CHAW), 1999-2012, and CPI (D7BT), 1999-2012, monthly; and GDP (YBHA), 1999-2012, quarterly, seasonally adjusted (AWE, AEI and GDP only), UK (GB for AWE and AEI).

8. 8 The NMW has protected the lowest paid but the middle has been squeezed Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, 1997-2004; ASHE including supplementary information, 2004-2006; ASHE 2007 methodology, 2006-2011; and ASHE 2010 methodology 2011-2012.

9. 9 Increases in wages for the lowest paid since 1998 Source: LPC estimates based on New Earnings Survey (NES), April 1992-1997, and ASHE: without supplementary information, April 1997-2004; with supplementary information, April 2004-2006; 2007 methodology, April 2006-2011; and 2010 methodology April 2011- 2012, standard weights, including those not on adult rates of pay, UK. Note: Direct comparisons before and after 1997, before and after 2004 and those before and after 2006 and 2011, should be made with care due to changes in the data series.

10. 10 But overall, wage growth stronger for the highest paid since the mid-1970s Source: LPC estimates based on Annual Survey of Hours and Earnings (ASHE) excluding supplementary information, 1997-2004; ASHE including supplementary information, 2004-2006; ASHE 2007 methodology, 2006-2011; and ASHE 2010 methodology 2011-2012.

11. 11 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; ASHE 2007 methodology, 2006-2011; and ASHE 2010 methodology 2011-2012.

12. So what has happened since the onset of recession?

13. 13 Since the onset of recession, pay settlement medians generally below inflation Source: XpertHR, IDS, LRD, and EEF, pay databank records, three-month medians; ONS, RPI (CZBH), monthly, not seasonally adjusted, UK, 2004-2012.

14. 14 Average earnings growth has fallen from around 4% to 2% since onset of recession Source: ONS, AWE three-month average growth for total pay (KAC3), and regular pay (KAI9), monthly, seasonally adjusted, GB, 2004-2012.

15. 15 Real earnings growth continues to fall Source: LPC calculations based on ONS data, AEI including bonuses (LNNC), 1989–2000, and AWE total pay (KAC3), 2001- 2012, monthly, seasonally adjusted, GB; and RPI (CZBH) and CPI (D7G7), monthly, not seasonally adjusted, UK, 1989-2012.

16. 16 Real average wages are no higher than 8-10 years ago and have fallen by 8-10 per cent since 2009 Source: LPC calculations based on ONS data, ASHE mean hourly pay; AEI including bonuses (LNNC), 1989–2000, and AWE total pay (KAC3), 2001-2012, monthly, seasonally adjusted, GB; and RPI (CZBH) and CPI (D7G7), monthly, not seasonally adjusted, UK, 1989-2012.

17. 17 The recession has affected the earnings of young people Source: LPC estimates based on ASHE without supplementary information, April 1999-2004; ASHE with supplementary information, April 2004-2006; ASHE 2007 methodology, April 2006-2011; and ASHE 2010 methodology, April 2011-2012 standard weights, UK.

18. 18 Similar wage growth in low-paying sectors up to 2007 but not since Source: LPC estimates based on ASHE without supplementary information, April 1999-2004; ASHE with supplementary information, April 2004-2006; ASHE 2007 methodology, April 2006-2011; and ASHE 2010 methodology, April 2011-2012 standard weights, UK.

19. 19 Wage growth higher in small firms up to 2007 but not since Source: LPC estimates based on ASHE without supplementary information, April 1999-2004; ASHE with supplementary information, April 2004-2006; and ASHE 2007 methodology, April 2006-2011, and ASHE 2010 methodology, April 2011-2012 standard weights, UK standard weights, UK.

20. 20 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 2012 wages grew faster at the bottom than elsewhere But it is the middle that has been squeezed Since the onset of recession, real wages have fallen and there has been a divergence in pay growth within the economy

21. So what has happened with regards to pay by gender over the same periods?

22. 22 Since the minimum wage was introduced, the gap between the proportion of men compared with women at the bottom of the earnings distribution has closed (slightly) Source: LPC estimates based on ASHE without supplementary information, April 1997and ASHE 2010 methodology, April 2012 standard weights, UK. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 under 2.90 3.103.303.503.703.904.104.304.504.704.905.10 5.305.505.705.906.106.306.506.706.907.107.307.507.707.90 8.108.308.50 8.708.909.109.309.509.709.90 Ten pence band Proportion of the respective workforce (per cent) 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Female - 1997Male - 1997Female - 2012Male - 2012 Clear spike at the minimum wage (£6.08 an hour in April 2012) Higher proportion of women paid towards the bottom of the earnings distribution

23. 23 Prior to the introduction of the NMW, both men and women saw higher earnings growth further up the earnings distribution… Source: LPC estimates based on New Earnings Survey, 1992-1997.

24. 24 Since 1999, females have seen higher average earnings growth than men, including in the period since the recession… Source: LPC estimates based on ASHE without supplementary information, April 1999-2004; ASHE with supplementary information, April 2004-2006; and ASHE 2007 methodology, April 2006-2011, and ASHE 2010 methodology, April 2011-2012 standard weights, UK standard weights, UK. 0 1 2 3 4 5 6 7 05101520253035404550556065707580859095 Hourly earnings distribution excluding overtime (percentile) Annualised increase in hourly earnings (per cent) 0 1 2 3 4 5 6 7 Male 1999-2007Male 2007-2012 Female 1999-2007Female 2007-2012 NMW led to large rises for lowest earners

25. 25 …However, looking at earnings growth in individual years shows a more mixed picture. -4 -3 -2 0 1 2 3 4 05101520253035404550556065707580859095 Hourly earnings distribution excluding overtime (percentile) Annualised increase in hourly earnings (per cent) -4 -3 -2 0 1 2 3 4 Male 2009-10Male 2010-11Male 2011-12 Female 2009-10Female 2010-11Female 2011-12 Source: LPC estimates based on ASHE 2007 methodology, April 2009-2011, and ASHE 2010 methodology, April 2011-2012 standard weights, UK standard weights, UK.

26. 26 Overall, earnings growth at the median has been higher for women since the introduction of the NMW… Source: LPC estimates based on ASHE without supplementary information, April 1999-2004; ASHE with supplementary information, April 2004-2006; and ASHE 2007 methodology, April 2006-2011, and ASHE 2010 methodology, April 2011-2012 standard weights, UK standard weights, UK.

27. 27 … and this has continued to close the gender pay gap for both median and average earnings. Source: LPC estimates based on ASHE, 1997–2012. 0 5 10 15 20 25 1997199819992000200120022003200420052006200720082009201020112012 Gender pay gap for full-time employees, 22+ (per cent) 0 5 10 15 20 25 MedianMean

28. 28 Conclusion Although earnings growth has been weaker for young people and those in small firms, it has been stronger for women over the period of the NMW (since 1999) This is true both prior to the recession, and since 2008 The NMW has increased the earnings of those at the bottom of the earnings distribution (predominantly women) But women have also seen stronger earnings growth across the whole earnings distribution since 1999 Stronger earnings growth for women has reduced the gender pay gap, for both mean and median earnings