“Today’s figures show that after inflation, since he came to power, people’s wages have fallen on average by over £1,300 a year.”
Ed Miliband, 13 June 2013
The latest official figures on jobs and wages came out this week – but was the news good or bad? If you watched Prime Minister’s Questions on Wednesday, it was hard to tell.
David Cameron wanted to talk about encouraging new employment statistics, but Ed Miliband preferred to talk about “the living standards crisis”.
The Labour leader said: “Wages are falling for ordinary people. He wants to tell them they’re better off but actually they’re worse off.
“Can he confirm that today’s figures show that after inflation, since he came to power, people’s wages have fallen on average by over £1,300 a year?”
The Prime Minister confirmed no such thing. So where is Mr Miliband getting his figures?
Mr Cameron’s answer was a bit of a non-sequitur: something about the Institute for Fiscal Studies (IFS) and Labour’s economic record in 2008.
Actually, Mr Miliband’s line of attack had nothing to do with the IFS.
Labour have got independent researchers at the House of Commons library to look at changes in wages since the 2010 general election.
The average worker was earning £424 a week in May 2010 and £447 a week in April this year – the latest period we know about. So wages have been rising, but only in cash terms.
Inflation has been rising faster than wages for the last few years, as has been very widely reported.
Adjust the numbers for inflation and we get £473 a week in May 2010 compared to £447 now in real terms. Multiply that by the 52 weeks of the year and average real annual earnings have fallen from £24,669 at the time of the election to £23,308 in April 2013.
That’s a fall of £1,362. There’s nothing wrong with these figures, which all come from the Office for National Statistics.
But Labour are looking at things in the most pessimistic way possible.
For a start, average earnings can be calculated in a number of ways. You can look at “total wages”, in which bonuses are included, or you could take “regular pay” – in which they’re not.
Then you can measure inflation in different ways. When the ONS do calculations like this they tend to use the Consumer Price Index.
But Labour have used the Retail Price Index index here. The differences between the two measures is complex (click here for a full explanation), but RPI tends to be higher, which may well be why the coalition has switched from using RPI to CPI to uprate benefits and public sector pensions.
Labour’s official explanation for this methodological choice is “RPI is a more complete measure of inflation which takes into account housing costs (which take up a substantial portion of individuals’ pay packets) – so it would more adequately represent the ‘real terms’ squeeze on wages in current economic conditions.”
By happy accident, using RPI makes the loss of earnings look much bigger. If you choose to look at regular pay and use RPI to measure inflation, the shortfall is more than £1,300. If you look at total pay and CPI, the loss it’s a more modest £528.
But Labour’s point stands: real wages have fallen since the election.
Mr Cameron is also right to say that it’s not all bad news. This week’s employment figures show: 24,000 more people in employment; 5,000 fewer people unemployed; the number of people claiming Jobseeker’s Allowance down for the seventh month in a row.
Between 1.05 million and 1.25 million private sector jobs have been created under the coalition, depending on whether you choose to include or exclude nearly 200,000 further education workers whose status was changed from public to private last year.
There’s nothing wrong with Labour’s numbers, although they are selecting the worst possible statistic from a range of options.
The bigger question is whether falling wages is such a bad thing.
It sounds like a no-brainer, but some commentators think flexibility over pay is one of the reasons why unemployment is not as high as it might be.
Research from the IFS out this week suggest that at least among men, the unemployment rate has not dipped to the levels seen following previous recessions.
One theory is that a decline in trade union membership and collective bargaining in recent decades means firms can now slash wages instead of laying people off.
So it’s possible to see wage stagnation as the lesser of two evils.
By Patrick Worrall