As the cost of living increases, attention is turning to the value of wages.

This Insight tracks what’s happened to wages in Great Britain since the start of the pandemic and discusses the outlook for real wages in 2022.

The wages data used here is for average weekly wages for all employees from the Office for National Statistics (ONS). We mostly focus on total wages (including bonuses) and real wages (adjusted for inflation).

What happened to wages in each stage of the pandemic?

As the chart below shows, real average weekly wages fell at the beginning of the pandemic, rose between June and November 2020, and then became stagnant.

A chart shows real average weekly wages fell at the beginning of the pandemic, rose between June and November 2020, and then became stagnant.
Source: EARN01, Average weekly earnings, 15 February 2022

Stage 1 – wages fell

At the beginning of the first lockdown (March to May 2020) average weekly wages fell. This was partly due to many furloughed workers only receiving 80% of their usual wages, and because many people’s working hours were reduced.

Stage 2 – wages rose

Between June and November 2020, wages rose again. This was partly due to workers increasing their hours as coronavirus restrictions lifted.

The ONS also attributes this increase partly to compositional effects. Low-paid workers were more likely to lose their jobs than high-paid workers during the pandemic. Fewer low-paid workers in the workforce meant the average earnings of the remaining workers increased.

Stage 3 – wages became stagnant

Since November 2020, wages have stagnated, with total real weekly wages staying between £593 and £600 between November 2020 and December 2021.

The lockdown restrictions from November 2020 to March 2021 meant wages stopped rising.

From April 2021, wages before adjusting for inflation started to increase slightly. Two possible reasons for this are:

However, inflation has been rising since early 2021 and reached 5.9% in January 2022 – the highest recorded inflation rate since the early 1990s. This means that growth in real wages has been dampened.

Wages have grown in some sectors and fallen in others

Wage growth has varied between sectors, and these changes have mostly cancelled each other out. Real wages grew by 3.8% in the Finance and business services sector in November 2020 to December 2021, while all other sectors had a fall in real wages. Manufacturing had the largest percentage fall during this time, of 3.0%.

A chart shows real wages grew by 3.8% in the Finance and business services sector in November 2020 to December 2021, while all other sectors had a fall in real wages.
Source: EARN03: Average weekly earnings by industry, 15 February 2022

What’s next? Stagnant wages and high inflation could mean falling real wages in 2022

The Bank of England expects inflation to peak at 7.25% in April 2022, and the conflict in Ukraine means this is likely to be an underestimate. The Bank also expects wages to grow by around 4% (before adjusting for inflation) in 2022. Together, this means that real wages are set to fall for at least the first half of 2022.

The rise in National Insurance Contributions by 1.25% in April 2022 will also reduce take-home pay.

One factor which might increase wages is pressure on employers to keep up with inflation: the CIPD surveyed employers in January 2022 and found 40% expected basic pay to increase in 2022 and only 1% expected a decrease.

Overall, the Resolution Foundation thinktank predicts that if inflation falls back in the second half of the year, real wages will be the same next Christmas as they were at Christmas in 2021.

Wages behaved differently for different groups

Public and private sector workers

The chart below shows that at the start of the pandemic, the decrease in wages was entirely driven by the private sector, while average wages in the public sector increased.

More jobs were furloughed in the private sector, where the construction, hospitality, and retail industries used the furlough scheme most. Meanwhile, public sector employees in the health and social care sector increased their hours, which meant increases in average pay.

A public sector pay freeze, announced in the November 2020 Spending Review, began in April 2021. This excluded workers earning below £24,000 and around 1 million NHS workers, but still meant a fall in public sector wages, so that public and private sector wages (including bonuses) were at a similar level from June 2021. The public sector pay freeze is set to end in April 2022.

The Library briefing Public sector pay provides more information on long-term trends.

A chart shows total real average weekly wages for public and private sector
Source: EARN02: Average weekly earnings by sector, 15 February 2022

Low-paid workers

Low-paying sectors were the worst affected by the crisis. Low-paid workers were most likely to be furloughed or lose their jobs during the first lockdown. Employment in low-paying sectors like hospitality and retail was also slower to recover, so by March 2021, 21% of low-paid workers were either no longer working or had lost hours because of the pandemic, or were on furlough.

As coronavirus restrictions lifted however, vacancies in low paying sectors recovered quickly, and the Institute for Fiscal Studies found that job opportunities in the lowest paid third of occupations were almost 20% higher in June 2021 than two years earlier. This should mean more employment and more hours worked among low-paid workers, which will increase their wages.

As well as this, in April 2020, the National Living Wage reached 60% of median wages, and in 2021 it was increased further to £8.91. This has increased the wages of low-paid workers, though high inflation will dampen the growth in real wages.

The Library briefing National Minimum Wage statistics provides more information and statistics.

Further reading

UK labour market statistics, House of Commons Library

Coronavirus: impact on the labour market, House of Commons Library

Rising cost of living in the UK, House of Commons Library

About the author: Brigid Francis-Devine is a researcher at the House of Commons Library, specialising in labour markets, incomes and poverty.

Photo by Philipe Cavalcante on Unsplash

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