The words of Sherlock Holmes regarding "the curious incident of the dog in the night-time" (external website) have once again been alluded to with reference to pay awards. Describing the failure of summer 2008 warnings of a wage-price spiral (in which higher inflation, coupled with higher inflation expectations, would feed through into higher wage demands), the Guardian's Ashley Seager states that wage inflation "was the dog that didn't bark" (external website).
In one of my first posts for Employment Intelligence (back in June 2007), I reported on then Monetary Policy Committee (MPC) member Professor David Blanchflower' comment that "it appears that wages are the dog that hasn't barked," given the apparent reluctance of UK employers to set pay awards in line with the then-strong growth in headline retail prices index (RPI) inflation.
The situation now is markedly different: RPI inflation is stuck in negative territory, while pay awards have collapsed to record lows (subscription required). The metaphorical canine remains silent for now.
And it looks likely to remain so. While there is a risk that inflation will accelerate rapidly in the coming months, pay awards are unlikely to follow suit.
We could yet see a negative wage-price spiral developing, in which negative inflation pulls down pay awards, in turn constraining workers' purchasing power and thereby forcing further cuts in prices.
Don't expect to hear any barking any time soon - night time or otherwise.
- Has your organisation recently carried out an annual pay review? If so, and if it has now been settled, please get in touch so that we can add your organisation's pay award to the IRS database.
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