Pay awards slump to record low

Our headline figure has never fallen below 2% before. The previous record for low pay awards was a 2% median recorded between August and December 1993. Other "firsts" revealed by IRS this month include:

• the lowest median on record for basic pay rises in the private sector, at 1% in the three months to 30 April 2009; and
• the lowest median on record for pay deals in the manufacturing sector, which is a pay freeze for the three months to April 2009.

The proportion of all pay deals that are pay freezes or cuts is 32% for the three months to April 2009. In the private sector, this figure is 35% and in the manufacturing sector it is 50%. Few employers are cutting pay, however, with only three pay cuts recorded in the three months to April 2009.

While recession is the obvious culprit, we did not see pay freezes this numerous or pay awards this low in the two previous recessions of the early 1980s and 1990s. The main difference is the fact that headline inflation has entered negative territory, where it looks set to stay for the rest of this year [subscription required].

With more than one third of employee groups getting no pay rise at all, the outlook looks  bleak for many private sector workers, although in some sectors - such as the utilities - pay rises have held up well thanks to inflation-linked, long-term deals (see our latest table of pay deals, subscription required).

In the public sector, however, deals such as the 2.4% pay rise from 1 April 2009 for NHS workers covered by Agenda for Change - which looked penny-pinching last April when RPI inflation was 4.2% - look relatively generous against inflation of -1.2% in April 2009.