February 3, 2011 12:02 am

Pressure on pay in private sector increases

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Pressure for higher private sector wage rises is growing, especially in manufacturing, as workers struggle to defend themselves against the most sustained fall in living standards since the 1920s.

Incomes Data Services, the pay analyst, said an “early look” at 25 pay awards across the economy last month showed the median edging up to 2.6 per cent, compared with 2.2 per cent in the final quarter of last year.

Awards are still lagging behind inflation, which seems set to rise further after reaching 3.7 per cent, measured by the consumer prices index, in December.

The retail prices index, used as the benchmark for many pay deals, was up by 4.8 per cent.

Pay rises in manufacturing reached 2.9 per cent in the three months to December, according to IDS Pay.co.uk, and more than a third were for 4 per cent or more. Increases in private services were lower at 2.1 per cent, with many retailers following October’s 2.2 per cent rise in the national minimum wage.

IDS has forecast that pay settlements across the economy could reach 3 per cent this year.

In the public sector, however, most workers face a two-year pay freeze coupled with deep job cuts.

Mervyn King, governor of the Bank of England, warned last week that real wages this year were likely to be no higher than in 2005, making it the most prolonged fall in living standards for more than 80 years.

Ken Mulkearn, editor of IDS Pay Report, said: “The squeeze in incomes resulting from the sharp rise in inflation means that in many parts of the private sector, employees are looking for wage rises to compensate them for cuts in real take-home pay.

“Our latest figures show evidence of this in manufacturing in particular.”

Pay growth was more subdued in other parts of the private sector, he said, but the pressures could be reflected in bonus payments over the coming months.

He added: “It’s a very different picture for the public sector, where a two-year pay freeze is taking hold against a backdrop of startling job cuts.”

A report by law firm Speechly Bircham and King’s College, London, warns that employers face the danger of workplace unrest as longer hours, stress and skill shortages take their toll on staff.

Nearly half of human resources managers said in a survey that stress-related problems had gone up and almost a third said grievances had increased.

Forty per cent expected employee relations to worsen.

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