What are ‘average weekly earnings’ and why don’t they tell the whole picture on pay growth?
The latest figures released by the Office for National Statistics (ONS) on average weekly earnings (AWE), its recommended measure of short-term pay or earnings growth, showed that regular earnings growth (which excludes bonuses) was 4.8% for the whole economy in the three months to September 2024. By contrast the median whole-economy pay award monitored by IDR for this period was somewhat lower, at 4.0%.
As part of the Monthly Wages and Salaries Survey (MWSS), the ONS asks a representative sample of employers how much they have spent on pay that month and how many employees they have. These figures are then used to produce three overall averages: total pay, which includes bonus payments; a separate bonus pay figure; and regular pay, which (like total pay) includes overtime and shift payments.
These estimates are provided for the whole economy and broken down into the private and two public sectors, one including and one excluding financial services. Following the financial crisis of 2008, the government bailed out the Royal Bank of Scotland and Lloyds Banking Group. This resulted in these companies being included in the ‘public sector including financial services’ category. By contrast, the category ‘public sector excluding financial services’ is the proper equivalent of the public sector as it excludes any effects from bonuses, which are significant in financial services but negligible in the public sector. The private sector is split further into sectors including construction; finance and business services; manufacturing; and wholesaling, retailing, hotels and restaurants.
The table below shows an extract from the latest AWE release from the ONS. The first column shows the amount of average weekly earnings in total pay terms (including bonuses) for the whole economy in the month of September 2024. The next column indicates that in the single month of September, this figure was 4.2% higher than the equivalent month of September 2023. The final column shows the percentage increase in the amount for the three months to September 2024 compared with the same period a year earlier. The release also shows figures on the same basis for each of the sectors listed above for each of the three overall averages: total pay (including bonuses), regular pay (excluding bonuses) and a bonus series, which shows average bonus payments only for each sector.
Average weekly earnings figures differ from those on pay settlements because AWE is a monthly measure of increases in average pay including bonuses, shift and overtime, rather than the typically annual percentage increase in basic pay under pay awards. This generally gives rise to a quantitative difference between average earnings growth and the median level of pay rises that is known as ‘earnings drift’, with the AWE figure usually greater than that for basic pay awards as a result of these additional elements. The inclusion of bonuses also means that total pay growth in particular is more prone to fluctuation – something that is common in financial services and was seen in the public sector when bonuses were paid to NHS and civil service staff in June and July 2023 but no such payments were made the following year.
Various factors can affect how much an employer spends on pay in a given month, such as restructuring of the operational aspects of the company, a change in working hours in response to demand, or simply turnover, as more experienced, higher-paid employees leave and are replaced by staff at the lower end of the earnings distribution.
The composition of the MWSS sample also changes on a monthly basis due to the response rate to the survey, which is distributed to around 9,000 employers covering approximately 12.8 million employees (around 40% of the current workforce aged 16-64). This may affect the AWE figures if the relative proportions of employees in low-paying and high-paying industries changes – for example, a higher percentage of employees in high-paying industries would cause average earnings to rise while an increase in the relative number of employees in low-paying industries would cause average earnings to fall.
The AWE figures are occasionally misreported in the media as ‘average pay rises’. But as a measure of the change in average weekly earnings, they are quite different. Because the average weekly earnings figures include additional elements that are excluded from basic pay awards, they are rarely used to directly inform decisions on basic pay awards, though they might be part of the backdrop.