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ONS figures understate fall in pay, warns report: UK's 4.5m self-employed left out of official statistics Wages could be 20% lower than estimated, says study

July 10, 2014

Phillip Inman Economics correspondent

Average wages in Britain have fallen further than official figures show after a huge shift into low-paid self-employment since the financial crash, according to a report by a leading thinktank.

Wages could be more than 20% lower than currently estimated across the whole workforce once Britain's 4.5 million self-employed people are included in pay figures, said the Resolution Foundation.

A real-terms fall of 10% in average wages since 2008 would increase to more than 12% if a 27% fall in self-employed incomes is taken into account.

Before the Bank of England's decision on interest rates at its monthly meeting today, the thinktank said the exclusion of pay figures for the self-employed gave a skewed picture of the health of the UK's labour market.

Officials on the Bank's monetary policy committee, which sets interest rates, are understood to be concerned that the exclusion of self-employed incomes from official figures hampers their efforts to gauge when to increase the cost of credit.

Laura Gardiner, a senior analyst at the Resolution Foundation and the author of the paper, said official figures used by the Bank and other policymakers gave "a picture that's incomplete at best and sometimes misleading".

She said: "What we know about earnings is central to our understanding of the recovery and the timing of interest rate rises so it's crucial that we equip ourselves with the best possible wage measure." More than 700,000 people have declared themselves self-employed since 2008, bringing the total number of people who work for themselves to 4.5 million or one in seven of the total. Over the same period only 260,000 workers have been added to the ranks of the employed on a net basis, said the report.

The thinktank believes wage levels were underestimated in the immediate aftermath of the financial crash as self-employed people maintained healthier incomes than employees on average. But once the recession was under way and newly unemployed workers switched to self-employment, usually to take on part-time roles, average wages fell.

Changes in the self-employed workforce - with more women and more workers from lower-paid sectors - are also likely to have had an effect.

"It's also the case that the self-employed have greater flexibility to respond to lower demand by making ever deeper cuts to their earnings," she said.

Resolution said the effect was similar whether the median or mean calculation of wages was used.

Resolution Foundation boss Gavin Kelly said the Office for National Statistics had a "lopsided approach" to measuring the health of the labour market.

While self-employment is counted when calculating the number of new jobs in the economy, the incomes of self-employed people are excluded, he said.

The situation is of growing concern to policymakers who want to understand the strength of the recovery. The Bank's monetary policy committee is expected to raise interest rates before the end of 2014 despite concerns that wages remain well below their peak and pay awards remain weak.

Gavin Kelly, page 28 =

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Source: Guardian (UK)

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