Wednesday, 7 November 2012

Is pay 62% higher?

Do you feel like you are being paid 62% more?

That's the claim from the latest official stats which relate that the average hourly wage is 62% higher in real terms than in 1986.

Cash wages are more than three times as much - the percentage rise form the ONS is arrived at by adjusting for the impact of prices rises or inflation.

But whether you were already in work then, or started later but compare yourself to workers of the time, few of us feel that much better off, do we?

There are several explanations for the "we're paid paid more but it doesn't feel like it" effect.

One is that the years we remember best, the most recent ones, have been tough and wage-sapping.

Most of us are being paid less in real terms than before the credit crunch and financial crisis - in other words, since about 2007.

Inflation has outstripped wage increases and some people's wages have stood still or fallen in cash terms.

Another reason is that we spend more on things which seem necessary now but were deemed luxuries in 1986 or hadn't even been invented yet.

I'm thinking holidays, but also pay TV, mobiles and computers.

A typical family might have several mobile phones. That's a totally new cost.

Of course, all this new spending and new goods and services have expanded the economy as well. The whole thing is bigger. It makes us look like a richer country.

Finally, you can slice and dice these numbers in different ways and get different results.

The Office for national Statistics gets to 62% by using the Consumer Prices Index or CPI, the headline measure of inflation, to show the real buying power of wages in different years.

Well, why not? It gives a nice heart-warming result.

The more traditional measure, the Retail Prices Index or RPI, tends to be higher. So adjusting for RPI would have the effect of reducing the real increase in wages over 25 years.

Interestingly, the ONS is consulting on a different way of calculating RPI which would produce a lower figure - but that's another story.

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