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CIPFA: ABSENCE OF FEEL GOOD FACTOR NOT SURPRISING

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Gross average earnings are growing at an underlying rate of only 3.25% per annum, according to official data publis...
Gross average earnings are growing at an underlying rate of only 3.25% per annum, according to official data published yesterday, but on a seasonally adjusted basis it is only 2.3%. According to CIPFA's chief economist, Chris Trinder, this explains why there is still no feel good factor:

'The latest official figures complete the picture of earnings and employment growth in 1995. This is the third year running that underlying earnings growth has been low. With no signs of either earnings or employment growth picking up, it is no surprise that there is no feel good factor.'

The low earnings growth could have been expected to generate more employment growth, but the workforce in fact shrunk by 22,000 in the third quarter of 1995 - and a mere 81,000 growth on the same period last year, which was well below employment growth trends suggested by the rate of economic growth. Underlying earnings increased by 3.4% in 1995, by 3.8% in 1994, by 3.6% in 1993, and 6.1% in 1992.

Analysis by CIPFA suggests that there may be several explanations for the low earnings figures:

-- if full timers are being substituted by part-timers, then this is likely to be a one-off saving. Average earnings will thus raise in the future once the saving has been absorbed once and for all

-- if, on the other hand, entry wages for unemployed people getting new jobs are low, as Labour Force Survey data suggests, low average earnings growth can be expected to continue

-- low average earnings growth can also be expected if basic wage rate rises are applying to fewer and fewer of the existing workforce - as a result of local bargaining and changing terms and conditions.

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