Private sector pay growth (again excluding bonuses) has been grinding through the gears; it recently hit the psychologically-important 3% barrier. Private sector wage settlements so far this year are running at 2.8% and in some sectors, such as construction and IT, are running well in excess of 3%. The public sector has, for a number of years, been held to a 1% pay cap. This had the effect of suppressing whole-economy pay growth, both directly (given the public sector comprises around 18% of total employment) and potentially indirectly (due to the possible spill-over effects of public pay awards on the private sector). That public sector pay cap has now been lifted and decisively so. Earlier this year, over 1 million NHS workers received a one-year pay settlement of at least 3%. Some workers have received double-digit pay rises. They have been joined recently by a further 1 million workers from the armed forces, police and teachers, who have secured pay rises of between 2-3.5%. The largest segment of public sector workers – including those in Local Authorities – have yet to settle. But with the cap breached, it seems possible their pay settlements could also ratchet upwards. We can see that upward ratchet in pay in the distribution of pay settlements (Chart 24). According to the Bank’s comprehensive wage settlements database, so far this year around 65% of deals have been struck at rates above their level the previous year. The largest contributor to this rightwards shift in the settlements distribution has been the public sector.
Rolling regressions suggest the effects of unionisation on pay were largest during this period. If we look at the sectoral level, similar effects are seen. Sectors of the UK economy with higher levels of unionisation have seen smaller falls in their labour shares (Chart 20). Over the past few decades, a sector like administration and support activities with under 10% unionisation rates has seen its labour share decline, while a sector like education with a unionisation rate close to 50% has seen its labour share rise. (c)  Automation  A third factor potentially affecting the pay power of workers is the degree of automation in the workplace. The easier and cheaper it is to replace human with machine, the lower is likely to be the wage bargaining power of workers relative to companies. Increased automation and the dawn of a Fourth Industrial Revolution could, then, result in slower pay growth and workers receiving a smaller slice of the income pie. 19  Recent research has confirmed that intuition. The IMF has found a significantly negative effect of automation on labour’s share. 20  Acemoglu and Restrepo (2018) look at the influence of multi-purpose industrial robots  on pay growth across different sectors of the US economy. They find that one extra robot per thousand workers lowers wages by 0.25-0.5%. At 71 robots per 10,000 employees, the UK’s degree of robot automation lies well below France (127), Spain (150), the US (170) and Germany (301) (Chart 21).