Scottish Government

ANALYSIS OF HISTORICAL CONSTRUCTION COST MOVEMENTS IN SCOTTISH SOCIAL HOUSING FINAL REPORT

9.0 WAGES

9.1 Introduction

This section of the report examines trends in wage levels for different types of labour associated with the improvement, maintenance and management of social housing.

The analysis reviews real overall and annual changes over various time frames under the following categories:

a) Earnings growth generally
b) DLO staff and local authority staff in general
c) Private sector construction workers
d) Management staff in the RSL sector

9.2 Earnings growth generally

9.2.1 Whole economy

Ever since average earnings data began to be compiled by government in 1963, earnings in Great Britain have consistently grown at a faster rate than general inflation. Only once in the last 35 years have average earnings risen at a lower rate than general inflation - in 1977 when retail price inflation was still running at 16% per annum (the GDP deflator at 14%) following the oil crisis of 1973 but earnings were being restrained by prices and incomes policies and had fallen to an annual nominal rise of 10% from a peak of 26% in 1975.

Chart 9.1 plots the trend of the real change in average earnings in Great Britain since 1985. The chart shows that the strongest growth in real earnings occurred between 1985 and 1990 (average increase 2.8% per annum) and between 1998 and 2002 (average increase 1.9% per annum) while the economy was growing robustly. During the intervening years 1991 to 1997, when the economy receded and subsequent recovery was slow, real earnings grew at a slower pace of 0.8% per annum average. Over the whole study period, average earnings grew at an average rate of 1.7% per annum.

The long term trend of earnings consistently outpacing inflationary measures such as RPI or the GDP Deflator has been possible mainly through increases in productivity.

Chart 9.1 Average Earnings - Great Britain

9.2.2 Public and private sectors

The ONS have published separate Average Earnings data for the public and private sectors since 1990. Chart 9.2 shows that, since that time, private sector earnings growth has outpaced public sector earnings growth by 60%, the former rising by 16.9% in real terms, the latter by only 10.5%.

Private sector earnings did no more than match inflation between 1990 and 1993 (when the economy was in recession) but have since increased steadily as the economy recovered and grew. In contrast, public sector earnings increased in real terms between 1990 and 1992, even though inflation was relatively high (5.3% per annum average), but then experienced a real drop in earnings between 1992 and 1998. The most recent two years, 2001 and 2002, have seen public sector earnings rise at a faster rate than private sector, in part as a result of an upward pressure on pay from the political emphasis put on the delivery of public services.

Chart 9.2 Average Earnings in the Private and Public Sectors

9.2.3 Average earnings in construction

Over the study period 1985-2002, average construction earnings in Great Britain have outgrown average earnings in the economy as a whole as illustrated in Chart 9.3.

The chart shows that construction earnings grew at a faster rate than earnings in the whole economy at the beginning of the period, 1987-1990, and at the end of the period post 1999. These two time periods reflect the times when workload in the construction industry was rising at its fastest rate (see Chapter 10).

In conjunction with paragraph 9.2.1, the implication is that when real wage increases in the whole economy are high, those in construction tend to be higher, and when wages in the whole economy are low, those in construction tend to be lower, indicating that construction is particularly sensitive to the economic cycle.

Chart 9.3 Average Earnings in Construction

9.3 Local Authority staff

9.3.1 Craft operatives

The following charts plot the increase in wage rates for local authority building craft operatives, plumbers and electricians against their private sector equivalents since 1985, all deflated to reflect real increases.

The charts plot the movement of basic weekly wages as determined by the Joint Negotiating Committee for Local Authority Craft & Associated Employees. Manual and craft workers had substantial settlements in 1985/6 due to a change in the settlement date and again in 1986/87.

Chart 9.4 plots the real change in local authority building craft operative wage rates with the private sector equivalent, agreed by the Construction Industry Joint Council.

Chart 9.4 Local Authority and Private Sector Building Craft Operatives' Wage Rates

The chart shows the substantial above inflation wage rises secured by local authority craft operatives in 1986, 1987 and 1988, not matched in the private sector. After 1988, wage settlements were achieved at levels generally just above inflation.

In the private sector, wage agreements between 1985 and 1997 were generally in line with inflation. Real wages fell between 1992 and 1994 while the construction industry was in recession, including 1993 when there was no annual award at all, resulting in the dip in the trend line above.

In contrast, the chart graphically shows the sharp above inflation wage awards that have been secured by the private sector construction industry post 1997.

Charts 9.5 and 9.6 provide comparisons between local authority and private sector plumber and electrician pay rates between 1985 and 2002, which show similar trends to the building craft operatives in Chart 9.4.

Chart 9.5 Local Authority and Private Sector Plumbers' Wage Rates

Private sector electricians' rates fared better during the early 1990's construction industry recession than those of building operatives, though between 1991 and 1997 pay rates only matched the trend of general inflation.

The sharp increases that the graphs display post 1997 for both private sector plumbers and electricians exaggerate the true rate of increase. In both cases, substantial rises in basic wage rates (as plotted in the graphs) were partly balanced by reductions in allowances such as travelling payments. Nevertheless, total pay packages increased ahead of underlying inflation.

The disparity between the trends of the pay of local authority and private sector operatives in Charts 9.4 to 9.6 is also exaggerated by a change in the normal working week that occurred in April 1999. The charts plot the change in weekly wages but, from 1 April 1999, the normal working week for local authority craft and associated employees was reduced from 39 hours to 37 hours. The normal working week for all of the private sector operatives did not change throughout the study period and was maintained at 39 hours for building operatives and 37.5 hours for plumbers and electricians (before overtime rates come into play). The disparity in the trend lines is therefore exaggerated but the commentaries remain valid.

Chart 9.6 Local Authority and Private Sector Electrician Wage Rates

Table 9.1 plots the equivalent basic hourly rates of the local authority operatives with their private sector counterparts at the base year (1985) and the latest year (2002). Figures have been annualised to take into account the varying anniversary dates of wage awards. The figures include guaranteed minimum bonus payments where applicable.

Expressed in this way, it is clear that, over the complete study period, private sector rates have risen only slightly more than local authority pay rates. Higher growth of local authority pay in the first three years has been exceeded by big pay awards in the private sector since 1998.

In the private sector, despite differing wage negotiating bodies, differing time spans of wage agreements and differing short term trends, the increase in pay rates for the three categories of industry operatives considered has, over the full 17 year time period, been virtually identical.

Table 9.1 Basic Hourly Pay Rates for Local Authority and Private Sector Craft Operatives, Plumbers and Electricians

Comparisons are further complicated by differences in tool allowances, skill payments and travel allowances but these are excluded from the figures above.

9.3.2 Administrative, Professional, Technical and Clerical Staff

Before 1985 pay settlements for APT&C staff generally lagged behind their private sector equivalents. After 1985 APT&C staff generally continued to receive settlements lower than the private manufacturing average. In only three out of eighteen years were their settlements higher than this comparator, all three occurring in the second half of the 1980's (1986/87, 1988/89 and 1989/90).

9.3.3 Long term trends

The following charts are extracts from 'Pay in local government 2001' ⁵, compiled by the Employers' Organisation for Local Government, showing how local government earnings (manual and non-manual) have fared in relation to the private sector since 1970, for male and female full-time employees respectively.

Chart 9.7 Average earnings of male full-time local government employees as a proportion of their private sector comparators, 1970-2000

Chart 9.8 Average earnings of female full-time local government employees as a proportion of their private sector comparators, 1970-2000

The following commentary in respect of Charts 9.7 and 9.8 is also quoted from 'Pay in local government 2001' and reproduced with kind permission:

In the long-term the average earnings of full-time manual local government employees have improved slightly in relation to private sector manuals, albeit with a downturn in 2000. The trend for non-manuals, meanwhile, is the reverse, with the relative deterioration in earnings being more marked for females. Throughout the entire reference period average earnings of non-manual local government employees as a percentage of their private sector comparator have been higher than those of local government manuals.

Average earnings of both manual and non-manual male full-time local government employees exhibited a cyclical relationship in comparison with the private sector until the mid 1980s. Average earnings of male local government employees then fell relative to those in the private sector before improving again towards the end of the decade. The improvement peaked around 1993, with relative average earnings of male local government employees having now (2001) fallen below this position; more markedly for non-manuals.

Average earnings of female full-time manual local government employees increased relative to their private sector comparator up to 1975, before declining until 1979. The general pattern thereafter was for a rise in relative average earnings, although during much of the 1980s earnings of local government and private sector employees differed very little. Average earnings of female local government manuals are now (2001) five per cent higher than their private sector counterparts.

The composition of full-time female non-manual employment in local government differs from that in the private sector, and so partly explains why the average earnings of the local government have exceeded their private sector counterparts throughout the reference period. The earnings gap narrowed between 1970 and 1990, with quite marked fluctuations from year to year. Following an improvement in the relative position of the local government group in the early 1990s, a period of sustained decline set in, broken only in 2000. Average earnings of female non-manual local government employees are 15 per cent above those of their opposites in the private sector.

A key point identified from the observations is that local government employees have done relatively well compared with private sector employees during periods of minimal or negative economic growth but have tended to fare less well during periods of strong economic growth.

9.3.4 Scotland

The foregoing data relates to local government in England and Wales and national pay agreements negotiated on their behalf. The Employers' Organisation for Local Government supports local authorities in England and Wales. Local authorities are represented on national negotiating bodies by elected members chosen by and accountable to the Local Government Association (England and Wales), the Convention of Scottish Local Authorities and representatives from Northern Ireland. The negotiating bodies are national and the rates of pay are negotiated for Scotland as well as England and Wales. The rates ratified by Scottish local authorities track those agreed by English and Welsh local authorities that have been detailed earlier in this section.

The national agreements are voluntary and local authorities are free to manage their pay and employment to suit local conditions. However the great majority of local authorities make use of the national agreements

9.4 Private sector construction workers

9.4.1 National wage agreements

Trends of private sector pay settlements in respect of building workers, plumbers and electricians have been illustrated in section 9.3 in comparison with local authority pay rates in England and Wales.

The wage rates shown for building craft operatives agreed by the Construction Industry Joint Council represent basic minimum wage rates applicable in England, Wales and Scotland.

In Scotland and Northern Ireland there are separate wage negotiating bodies for plumbers and electricians. However wage rates agreed by the Scottish negotiating bodies normally bear a very close relationship to those determined by the English equivalent bodies (as illustrated in Table 9.2).

Table 9.2 shows daywork rates for Building Craftsmen, Advanced Plumbers and Approved Electricians calculated using wage rates and allowances determined by the English and Scottish wage negotiating bodies:

Construction Industry Joint Council

The Joint Industry Board for Plumbing Mechanical Engineering Services in England and Wales

The Scottish & Northern Ireland Joint Industry Board for the Plumbing Industry

The Joint Industry Board for the Electrical Contracting Industry

The Scottish Joint Industry Board for the Electrical Contracting Industry

Daywork rates represent the basic cost to a contractor of employing an operative, including basic wage rates and essential on-costs such as compulsory holiday and welfare payments and National Insurance payments.

Table 9.2 Daywork Rates for Building Craftsmen, Advanced Plumbers and Approved Electricians

Source: BCIS

Chart 9.9 plots these figures as index series from a base of 1985 = 100, deflated to reflect real cost change. The chart demonstrates the virtually indiscernible difference between the movement of rates in England and Wales and Scotland and Northern Ireland. Only in the last three years have the rates for plumbers and electricians in Scotland not fully matched those in England and Wales. Daywork rates for plumbers in England and Wales rose by a nominal 29.2% between 1999 and 2002 while those in Scotland and Northern Ireland increased by a slightly lower 26.6%. Similarly, daywork rates for electricians in England and Wales rose by 33.6% over the same period while those in Scotland increased by a slightly lower 31.3%.

Chart 9.9 Daywork Rates for Building Craft Operatives, Advanced Plumbers and Approved Electricians

The chart also shows that electricians have consistently improved their rates of pay over the period to a greater degree than other types of construction operative. However building operatives have profited from the sharpest rise in real wage rates since 1997.

9.4.2 Future wage increases

A new three year pay deal for building operatives was finalized in April 2003. The deal, in three annual increments, will raise basic rates of pay for building craft and general operatives by 23% overall. The first part came into effect in June 2003, lifting rates by 5.1%; the second will come into effect in June 2004, raising rates by 7.1%; and the third in June 2005, adding another 9.5%.

Basic hourly rates of pay for plumbers in Scotland and Northern Ireland rose by 7.4% in April 2003 and negotiations are expected to result in a new wage agreement from December 2003.

Electricians in both England and Scotland received increases in basic rates of pay of 5% in January 2003 in agreements that provide for a further 7.2% uplift in January 2004.

All of the percentage figures quoted above are nominal.

9.4.3 Site wage rates

Sections 9.3.1, 9.4.1 and 9.4.2 have summarized wage rates for some principal construction operatives as defined in national wage agreements. In practice this means effective minimum wage rates as bonuses and incentive payments are excluded. Similarly no account is taken of self-employed or agency labour rates. Bonuses and self-employed labour rates are largely determined by supply and demand and display a greater variance over time than the trends of the nationally agreed wage rates.

9.4.3.1 ONS data

The ONS carries out an annual sample survey of the earnings of employees in Great Britain and publishes the results in the New Earnings Survey. Separate data is published by industry, including construction, and by occupation, down to the level of bricklayers, painters etc. The 'average gross weekly earnings ' figures collected include overtime and bonus payments and should therefore provide a more realistic picture of real labour costs.

Data collected for 'Skilled construction trades' (as at April of each year) is shown in Table 9.3 for the North East, North West, Scotland and Great Britain and displayed graphically in Chart 9.10.

Table 9.3 Skilled Construction Trades - Average Weekly Earnings (current prices)

Source: ONS New Earnings Surveys

Note: Where figures are missing in the North East column, this means that the data sample was too small for reliability

Chart 9.10 Skilled Construction Trades - Average Gross Weekly Earnings

For much of the 1990's average earnings by skilled construction trades in Scotland were higher than the Great Britain average. Earnings in Scotland (and the North West and probably the North East) dipped in 1999, since when earnings in all three regions have generally been lower than the Great Britain average.

Chart 9.11 plots the same data, deflated to reflect real cost change, from a base date of 1991, to examine differential movements over time.

Chart 9.11 Index of Average Gross Weekly Earnings for Skilled Construction Trades

The New Earnings Survey data is a snapshot in time (April of each year) and is subject to sampling error. Nevertheless trends are clearly discernible. All the regions show a decline in real earnings between 1991 and 1993 (1994 in the case of Scotland), followed by a steady increase to 1998. All the regions experienced a drop in 1999. The North East, the North West and Great Britain as a whole have experienced increased earnings growth over the last two years but the statistics show that skilled construction earnings in Scotland have fallen in monetary and in real terms over that time.

9.4.3.2 EC Harris / Construction News Contractors' Input Cost Index

Since 1996, EC Harris, in conjunction with Construction News, have compiled a 'Contractors' Input Cost Index'. As a component of the index, EC Harris survey contractors in different regions of the country to establish rates they have to pay for bricklayers and carpenters.

Table 9.4 lists the average day rates reported for the last two years in North East, England, Scotland, Northern Ireland and the mean for the UK as a whole. In this case, it should be noted, the mean is simply the unweighted arithmetic mean of the various English economic regions plus Scotland, Wales and Northern Ireland.

Table 9.4 Average Day Labour Rates for Bricklayers and Carpenters (current prices)

This data suggests that last year bricklayers rates in Scotland were 5% lower than in the North of England, 3% higher than in Northern Ireland and 9% lower than the U.K. mean. Carpenters' rates in Scotland were 1% lower than in the North, 6% higher than in Northern Ireland and 8% lower than the U.K. mean.

This is at slight variance with the New Earnings Survey data, which showed average earnings for directly employed skilled tradesmen in Scotland were 1% lower last year than in the North East but a similar 9% lower than the Great Britain average.

Charts 9.12 and 9.13 plot the data published for bricklayers and carpenters day rates, deflated to reflect real change, since 1996. The trends identified are at strong variance with the ONS New Earnings Survey data. The trends above show real labour rates for bricklayers and carpenters increasing at a steady rate from 1997 to 2002: the U.K. mean has averaged an annual increase of 7.75% over that period, while in Scotland the average increase has been just behind at 6.85%, similar to the 6.7% annual average rise experienced in the North of England. The New Earnings Survey data identified a real average increase of 1.4% per annum for Great Britain as a whole and a real fall of 0.6% for skilled construction trades people generally in Scotland over the same period.

Chart 9.12 Bricklayers' Day Rates

Chart 9.13 Carpenters' Day Rates

The ONS data is a spot sample taken in April of each year, representing 1% of the total workforce. The ECH/CN data is based on a very small sample from each region once a quarter and this data has been averaged to derive the annual figures used in the analysis above. The ONS data measures pay of directly employed personnel on PAYE, including those on local government pay scales. The ECH/CN data reflects rates paid by contractors for labour, whether directly employed or contracted in. It is likely therefore that self-employed labour rates and agency labour rates have increased at a significantly greater rate than those of directly employed labour since 1997 as supply and demand has enabled rates to rise well above underlying inflation.

However, the ONS data remains inconsistent with other measures noted in this report. The increases noted, particularly since 1997, reflect similar changes to those identified in local authority pay scales rather than the private sector wage agreements. The ECH/CN data shows real increases in labour rates just ahead of the national wage agreement rates, as would be expected given the inclusion of self-employed labour rates in the sample. The patterns of real change identified in the ECH/CN data are also consistent with the real price changes identified in tender prices in Chapter 4.

9.5 Management staff in the RSL sector

Chapter 6.0 Management Costs considered the change in non-manual earnings generally in Scotland, the North of England and Great Britain with data from New Earnings Surveys. It also considered data for Service Industries and Private Sector Services in particular in respect of Great Britain as a whole.

It has not been possible to collect data specific to salaries of management staff in the RSL sector. However additional data from New Earnings Surveys has been collated and graphically represented to further identify likely trends in wage costs in this sector.

Chart 9.14 plots the real change in average gross weekly earnings for 'Managers and administrators', 'Associate professional and technical occupations' and 'Clerical and secretarial occupations' since 1991. These categories of occupation are part of the Standard Occupational Classification (SOC) system which was first introduced in 1991 and so which prevents any longer term trends being examined.

The chart shows that, over the last eleven years, there has been a pecking order whereby the real pay of managers and administrators has increased at a greater rate than that of generally lower paid associate professional and technical occupations whose pay in turn has increased more than that of clerical and secretarial jobs.

Chart 9.14 Growth in Real Earnings of Managers and Administrators, Associate Professional and Technical Occupations and Clerical and Secretarial Occupations in Great Britain

Chart 9.15 examines how pay in local government has fared with the economy as a whole. It shows that the pay of local government officers (with administrative and executive functions) has fared less well than that of managers and administrators as a whole. On the other hand the real wages of local government clerical officers and assistants has improved at a slightly greater rate than that of clerical and secretarial occupations generally.

The combined real rate of earnings for all three categories has, however, grown, by an annual average 0.8% to 2.1%, since 1991.

Chart 9.15 Growth in Real Earnings of Local Government Officers compared with the Whole Economy - Great Britain

The following sub-sections examine how the earnings of General Managers and Administrators, Associate Professional and Technical Occupations and Clerical and Secretarial Occupations vary between Scotland, the North East, the North West and Great Britain as a whole, in terms of actual wage differences and changes in real earnings over time.

9.5.1 General managers and administrators

Chart 9.16 shows the average gross weekly earnings of general managers and administrators in Scotland compared with the North East and North West of England and Great Britain as a whole since 1991.

The chart shows that average earnings for general managers and administrators in Scotland in 2002 were 10% lower than the average for Great Britain but match those in the North West of England. Earnings in the North East have been slightly lower.

Chart 9.16 General Managers and Administrators - Average Gross Weekly Earnings (Current Prices)

Changes over the whole period have been very similar for Scotland, the North West and Great Britain though earnings for general managers and administrators have fallen behind in the North East (Chart 9.17).

Chart 9.17 General Managers and Administrators - Index of Real Average Gross Weekly Earnings

9.5.2 Associate Professional and Technical Occupations

Chart 9.18 Associate Professional and Technical Occupations - Average Gross Weekly Earnings (Current Prices)

Average earnings of Associate Professional and Technical Occupations in Scotland in 2001 were 9% lower than the Great Britain average, a margin that has generally been maintained throughout the period examined. Earnings in Scotland have generally matched those in the North West and in 2001 were just 1% lower. Earnings in Scotland were 8% higher than in the North East, again a pattern that has generally been maintained throughout the period (Chart 9.18).

The pattern of real change in average gross weekly earnings for Associate Professional and Technical Occupations (Chart 9.19) is seen to be more erratic than that for Managers and Administrators for the regions though the trend for Great Britain is relatively stable over the whole period. This may be the result of a smaller sample.

Average annual percentage change for real earnings over the whole period has been very similar for all of the regions with Scotland trailing very marginally (average 1.2% per annum compared to average 1.4% per annum for Great Britain to 2001).

Chart 9.19 Associate Professional and Technical Occupations - Index of Real Average Gross Weekly Earnings

9.5.3 Clerical and secretarial occupations

Chart 9.20 Clerical and Secretarial Occupations - Average Gross Weekly Earnings (Current Prices)

Trend lines of average earnings for clerical and secretarial occupations tend to be smoother than the other occupations studied. This may well be because the sample number is larger than for the other categories. As seen before, average earnings for clerical and secretarial occupations in Scotland equate closely with those in the North West of England. In 2002 earnings in Scotland and the North West were 5% lower than the average for Great Britain and 4% higher than in the North East.

Chart 9.21 Clerical and Secretarial Occupations - Index of Real Average Gross Weekly Earnings

Real average earnings for clerical and secretarial occupations in Scotland have increased at a fractionally higher rate than the northern regions of England and Great Britain as a whole over the whole period and over the other two time zones examined. All of the regions show a sharper rate of real increase over the last two years.

9.6 Conclusion

Wages and earnings for both manual and non-manual workers throughout Great Britain (including Scotland) have consistently grown ahead of general inflationary measures, irrespective of economic conditions. This has only been possible because of continuously improving productivity in all sectors of life.

Prior to 1980 local government non-manual earnings tended to exceed those in the private sector but have since fared less well. Average earnings of manual employees in local government have tended to run at 80-90% of equivalent private sector earnings since 1970. In the last two years, public sector earnings generally have risen at a faster rate than private sector in response to the political emphasis on public sector delivery but, in the construction industry, private sector wage agreements have greatly outstripped those in local government over that time.

Over the study period, earnings in the construction industry have been shown to have increased at a faster rate than in the economy as a whole. Periods of higher than average real wage increase tie in with periods of high workload in the construction industry, including the current period post 1999. Wage agreements already in place for the next two to three years suggest that this trend will continue for at least that period of time.

Average earnings in Scotland for managers and administrators, associate professional and technical occupations and clerical and secretarial occupations are currently 5-10% lower than the Great Britain average but have tended, over the last eleven years, to move in line with other regions, rising at an average 1.1% to 2.1% per annum in real terms.