Listen to the leaders of the City of London and you would think Britain is America's poor cousin. FTSE bosses blame the London stock market's woes on low wages compared with the US.
But official data shows that, at least for the average worker, UK wage growth has far outpaced US wage growth.
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Wages rose 6% in March, according to the Office for National Statistics (ONS), beating economists' forecasts.
That's much more, according to the Atlanta Fed. than the 4.5% seen in the eurozone and even better than the 4.7% annual wage rise in the US in March.
Figures from recruiter Indeed show advertised salaries are rising faster in the UK, although they are slowing in the eurozone.
According to the Resolution Foundation, real wages rose more in 12 months than in the previous 16 years. Regular wages, adjusted for inflation, are 2.4% higher than a year ago.
Goldman Sachs' recent decision to lift the cap on bankers' bonuses in the UK – and the expectation that rivals will follow suit – suggests remuneration could continue to rise.
Strong wage growth partly reflects the UK's recently resurgent economy. In the first quarter of the year, growth rates exceeded those of the G7, significantly ahead of the United States.
However, the country still has a lot of catching up to do: average real wages are still 2.4% lower than they were three years ago, and workers are suffering long-term scars from the cost of living crisis.
British workers are also still earn much less than their American counterparts. The typical American earned $77,500 (£61,570) in 2022, compared with $54,000 for the average British worker, according to the OECD. In Germany this figure is $58,900, and in France slightly lower – $52,800.
However, strong wage growth is not necessarily good news. The Bank of England fears that high wage increases could lead to higher inflation. Hugh Pill, the Bank's chief economist, suggested interest rates may have to remain high for a long time.
So the British economy is potentially closer to America than to Europe – but for the wrong reasons. While the European Central Bank is close to cutting rates, the Federal Reserve is struggling to ensure a complete victory over inflation in the face of strong economic growth.
Why, then, is Britain facing this cocktail of strong wage growth? and potentially persistent inflation, while in the EU it is declining?
One reason is unemployment: in the UK it is significantly lower than in the eurozone, indicating a tight labor market that keeps wages high. At the start of the year, unemployment in the eurozone stood at 6.5%, well above 3.8% in the UK or 3.7% in the US.
Workers are quite happy to exercise power that gives them the right to demand more money. .
A wave of inactivity is holding back the UK labor market. 9.38 million working-age adults are unemployed and not looking for work. This is one million more than before the pandemic. Of these, 2.8 million are long-term ill, an increase of more than 700,000.
And then there is Brexit. While this has not stopped migration (and influx into the UK has increased sharply), the type of workers coming here may have changed since the end of free movement.
George Buckley, an economist at Nomura, says: “It may be that those coming from Europe had people on low wages and were acting to reduce wage pressure in some parts of the economy, whereas these people may have been a different mix “.
This will help explain why supermarkets have been forced to repeatedly increase basic wages in recent years to entice workers.
Although for now the UK is perhaps closer to the US than to the EU, the structure of the labor market is very different.
Firstly, the mandatory minimum wage in the UK is much higher: it is £11.44 for those over 21, compared to US$7.25 (£5.75) in the US and just US$2.13 for tipped workers, although some states have higher minimum wages.
Britain also has a large proportion of workers on the minimum wage, meaning the recent 10% increase in April has had a greater impact on official wage data than in the US.
About 5% – or 1.6 million workers – earn the minimum wage in the UK, compared with 1% in the US.
The Bank of England believes workers in “consumer-facing sectors” such as retail will see an average 7% pay rise in 2024, “overwhelmingly” driven by minimum wage increases.
Public sector work in the UK is also much larger than in America, accounting for around one in five employees, compared with one in seven in the US.
The number of UK public sector workers has risen from 5.6 million since the pandemic to 5.93 million people, including another 300,000 in the healthcare sector.
The majority of UK labor force growth last year came from the public sector. . Higher payouts are the main factor behind the Bank of England's significant increase in its overall forecast for wage growth this year from 4% to 5.25%.
However, continued rapid public sector pay growth appears unsustainable. The Treasury wants to rein in public sector wage deals this year and the sector's dismal performance figures are set to continue.
Private sector employment, by contrast, fell from almost 27.6 million before the pandemic to just over 27.2m.
The Bank of England still believes the economy will average wages at 5% this year, below the current level of 6%.
This reflects the fact that workers “are not expected to “consumer-oriented”, average wages will rise by about 4.5%.
According to data compiled by XpertHR, more than 40% of wage deals will be concluded in April, and it is likely that policymakers will want to read with these numbers before deciding whether to vote for a rate cut in June. Companies that settle later this year are expected to offer “substantially lower” wage increases, the Bank believes, as inflation cools.
As in the US, interest rate decisions are at the cutting edge , creating a headache for the economy. Bank of England
But for the average worker who sees extra money in their pay, such considerations may mean little. Enjoy the good moments while they last.
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