Although wages are rising, they are not even close to keeping up with inflation.
Find out the situation across Europe and what employers must do.
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The cost of living crisis is real; in the UK, inflation has reached a 40-year high of 9.1%.
This means it is becoming harder and harder for individuals to afford basic, essential goods, which are dramatically rising in price. This situation is compounded by the fact that people’s wages are actually declining when record-high inflation is taken into account.
According to data from the Office of National Statistics (ONS) in the UK, pay increased 6.2% from March to May 2022, compared to last year.
However, when the wage increase was adjusted for the rate of inflation, average pay including bonuses fell 0.9%. When bonuses were excluded, the average real wage declined 2.8%.
The ONS’s head of labor market and household statistics David Freeman commented on Twitter:
— Office for National Statistics (ONS) (@ONS) July 19, 2022
The Guardian reported that this decline is the sixth monthly drop in a row, and it comes as inflation is expected to continue to skyrocket to 11% in the coming month.
The ONS reported that the average monthly pay in the UK is £2,108 a month – this is equivalent to just under £26,000. In addition, 10% of the UK workforce earn less than £690 a month (£11,000), and 10% earn more than £4,951 a month (£59,500 annually).
The lowest paid sectors are food service and accommodation, arts, entertainment and recreation, retail, administrative and support services, health and social work, and education. All of their median incomes were lower than the national average.
The ONS data also found that the private sector benefited the most from the pay increases. Talking about the figures, AJ Bell’s head of investment analysis Laith Khalaf told the Guardian: “Growth in total pay, including bonuses, was 6.2% on average across the entire UK workforce.
“But there is a stark comparison between private sector wages, which rose by 7.2%, and public sector pay, which went up just 1.5%.
“It seems the government is exercising pay restraint in the face of runaway inflation, but the private sector is not. That’s hardly surprising given the obvious pressures on recruitment that companies are facing.”
Khalaf continued: “The big concern is that the higher wages paid by the private sector will serve to entrench inflation, while the small pay rises witnessed in the public sector in the face of soaring prices will continue to stoke industrial tensions.”
Remember, the UK is facing a summer of discontent with strikes expected to bring the nation’s rail sector to a complete halt. Industrial action is already disrupting the smooth operations of the wider transport industry, as well as the legal sector.
What’s the situation in Europe?
Of course, the UK is not the only country in Europe to be grappling with sky-high inflation (as well as industrial action).
Germany, for example, is dealing with a 7.6% inflation rate and just 0.2% economic growth. The German equivalent of the ONS – Federal Statistical Office – found that the high inflation rate caused a decrease in real earnings in the first quarter of 2022 (these are the most up-to-date figures).
While wages rose 4% in the first quarter, inflation hit 5.8%. This means that real wages declined 1.8%.
Given that inflation has now increased significantly since the end of May – despite federal government attempts to introduce relief measures – it is likely that the situation in Germany will follow the UK – watch this space for the next update from the Federal Statistical Office.
Inflation in France sits at 5.8%, but its economy is struggling with negative growth of 0.2%, according to the National Institute of Statistics and Economic Studies (Insee).
Insee noted that in June inflation rose by 0.7% on May 2022 levels – this was primarily due to energy prices – the situation is the same in the UK and Germany. Inflation has risen 3.7% since June 2021 in France.
But what impact is this having on wages? In the first quarter of 2022, wages in France increased 2.4% on the previous quarter.
The wage increases reported in France haven’t been adjusted for inflation, but with inflation being more than double the wage increase, it is likely that French employees are also feeling the squeeze like their German and British colleagues.
High inflation is going nowhere, and a recession is looming. These figures show that employees are struggling, and they need support from their employers now more than ever.
Raising wages or introducing bonuses may be part of the solution, but if they do not keep up with inflation, then they may not have a huge impact.
Employers could switch up their benefits to give employees discounts on essential items like food, or they could provide access to financial advisers so workers are empowered to make the right decisions about their money.
Just some food for thought, but it is time to do something, as, despite a looming recession, the ‘Great Resignation’ is going nowhere. Employees are prepared to jump ship for companies that will support them best in these challenging economic times.
