No pay ‘wipe out’ but another year of low pay rises to come, predicts LRD

Labour Research Department’s (LRD) comprehensive annual pay round analysis suggests that 2009-10 could be another year of hard bargaining, and low average pay rises, with a picture similar to the one we have seen in the last three months. What is more, if pay freezes in the public sector go ahead, the pay picture could dip again, and with it the strength of demand in the economy.
 
Of particular concern is that LRD’s Payline database shows a decline in the number of new long-term deals: that is, pay agreements providing a formula covering more than one year – sometimes inflation-linked – used in both the public and private sectors.
 
Throughout this year, LRD has argued that one reason for the slowing, rather than total ‘wipe out’, of pay rises during the recession has been the strong presence of pre-negotiated long-term deals between employers and unions, which on the whole have been honoured. These deals have provided an element of pay stability across the economy and in many cases have delivered higher than average rises.
 
However, it is clear from LRD’s analysis that many of these deals terminate this year, and are not being renewed. Only 15% of all settlements next year will be the result of existing long term deals, in comparison with more than one-quarter this year (26%): that is, around one in seven compared to one in four. 
 
Added to possible public sector pay freezes, depending on the outcome of next year’s election, this could paint a grim picture for average pay settlements, and thus one element of economic stability, for the year to come. 
 
Where pay deals are already known for 2009-10, LRD’s database indicates that the pattern looks similar to 2009. Wage freezes will continue (for example at Jaguar LandRover and in the plumbing industry) along with very low increases. But the majority of settlements are likely to be around 2-2.5% (for example Ford, Balfour Beatty Rail and Shell UK Oil). What is more, there are still some, as this year, expecting to receive above 4% (for example the electrical contracting agreement and Hull Trains).
 
“The partial retreat from long-term deals could result in more subdued pay growth in 2010,” said Lewis Emery, LRD’s pay and conditions researcher.
 
“We have seen some pick-up of pay settlement levels since April. However, at least four crucial questions overshadow the chances of continuing pay growth: will current pay freezes be lifted? What kind of pay offers will employers make with fewer long-term deals setting the pace? Will RPI inflation return? And most decisively of all, what will happen with public sector pay?”
 
LRD’s whole-year analysis shows that 2008-09 has been a pay-round of two halves.
 
From August until Christmas 2008, pay rises continued to average around 3.8% (mid-point). But from January there was a surge in pay freezes, and the pay picture split between those receiving wage freezes or even in some cases cuts, and those whose wage settlements remained well into positive figures.
 
April 2009 was the bleakest month for pay, with 27% of April deals being wage freezes or cuts, and another 20% receiving less than 2%.  The overall pay rise median for April was just 1.7%. Since then there has been a marginal improvement.
 
Averaged over the whole year, however, the picture does not look quite so bleak. From August 2008-July 2009, 30% overall received less than a 2% rise, including cuts and freezes, covering almost one-third of the workforce; however, a significant 22% (over one-fifth) of deals were for 4% or more, covering 13% of the workforce.  This leaves over two-fifths (41%) of deals achieving between 2% and 3.99%, applying to almost half (49%) of workers.
 
There was no significant difference in median (mid-point) between public and private sectors (2.6% for both) over the year. However, the range of private sector pay deals has been greater, with more freezes and low-paying deals and also more high-paying deals than the public sector.
 
The analysis is based on 774 known pay deals during 2008-09 from LRD’s Payline database of over 2,300 agreements on pay, terms and conditions.