Workers nervous as pay gap widens

Although pay deals were slightly down last quarter, employers are still offering inflation-busting hikes...

Last Updated: 31 Aug 2010

The median pay settlement in the three months to July was 3.5%, according to new figures from research firm Incomes Data Services, marginally down on the previous quarter’s figure of 3.6%. On the other hand, a quarter were 4.5% or over, suggesting that some better-off employers are trying to keep their pay rises ahead of inflation – which is not at all what the Bank of England wants to hear as it tries to keep a lid on the problem…

The latest IDS survey (which looked at 57 different deals, mostly from the private sector) found a very mixed picture across UK plc. The majority of employers complied with the Government’s wishes and kept their pay deals below the level of inflation – more than a third settled on a 3% hike, including most of those in the not-for-profit and retail sectors (like Boots, Waterstone’s and the Prince’s Trust, for instance).

The problem, of course, is that with inflation currently running somewhere between 4% and 5%, all these deals effectively amount to a cut in take-home pay. And that’s presumably why those employers who are not feeling the squeeze are being persuaded to agree deals on or above the level of inflation – this group accounts for about 25% of the total, with the chemicals and pharmaceuticals industries enjoying the biggest increases. (Strangely enough, some of the biggest winners were staff at the Construction Industry Joint Council, who got a 6% hike despite their industry being in the doldrums)

And it’s this upper quartile that Alistair Darling and Mervyn King will be worried about. In its latest inflation report, the Bank highlighted the potential dangers of employers being pressured into higher wage settlements. Although it also pointed out that others will be so worried about the forthcoming recession/ downturn/ slowdown that they’re more likely to cut jobs instead...

So UK workers clearly find themselves on the horns of a dilemma at the moment. On the one hand, as prices continue to spiral they’ll know that anything less than a 5% rise probably means they’ll be worse off than last year. On the other, many are worried about not having a job at all: according to a TUC survey published today, more than one in ten are afraid that they’ll get the boot this year. This would almost double the current unemployment level, which sounds pretty unlikely – but it shows how jittery people are.

And with the latest predictions suggesting the economy could actually shrink over the next 12 months, they’re unlikely to find much solace any time soon...

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