With the release of the labour market statistics from the ONS yesterday, it was widely reported that wage growth beat inflation in September, with average pay rising by 1.3% against the 1.2% recorded for inflation – a significant milestone, some argued. Of course this moment simply represented the most marginal of real-terms pay rises, but this isn’t the main reason why you should exercise caution over the use of this headline by political figures.
On our Cicenomics page, Cicero Elections has produced three key trackers running back to the 2010 General Election which help us understand the electoral effect of that famous off-the-wall Clinton remark, “It’s the economy, stupid”. One of these three trackers is real-terms wage growth, and unlike yesterday’s headlines, it recorded no such rise above September’s inflation. See the interactive tracker in full, below.
Updated monthly. Inflation measured from CPI. Sourced from ONS.
The reason for the lack of wage growth is because there are different ways to track wage growth in the UK, principally either in the inclusion of bonuses (IB) or the exclusion of them (EB). It may sound like a small variable, but our tracker, which is IB, has shown that pay has already exceeded inflation once this year, and more substantially than the 0.1% rise reported yesterday – the result produced when measuring EB.
Great noise was made about the positive wage growth recorded last March, despite the fact that the EB measure had shown wages to once again have fallen that month. Employing a pick ’n’ mix approach to the use of ONS data is nothing new, but this method is often the hallmark of political strategists attempting to smooth over the cracks of a much bigger fissure: the fundamental failure of wage growth to sustain its lead over inflation since The Crash.
In fact, EB has typically painted a much harsher picture of falling wages in the UK since the General Election than our IB tracker, and it is for this reason that we must beware which underlying data is informing the headlines which politicians then capitalise upon.
We must also maintain that the primary measure of inflation is revised and refined retrospectively as more time passes. As the real-terms rise in pay recorded by EB in September is on the very cusp of negative territory, it is distinctly possible that yesterday’s headlines will be rendered factually incorrect in future inflation revisions.
The point here is not to rely solely on one indicator to test the electoral importance of the economy at any one time. The British economy is, in many ways, booming once more. But there are some core reasons why this headline economic growth is not yet being translated into an electoral advantage for the Conservatives.
Head over to our Cicenomics page where we make the argument in full as to how we can interpret wage growth when measured against our two other key indicators, and what this can really tell us about how economics shifts votes.