Business
Average Earnings Index How we measure growth in pay

The Average Earnings Index (AEI) is Great Britain's key indicator of how fast earnings are growing.

The index measures how earnings in the latest month compare with those for the last base year when the index took the value of 100. The current base year is 1995.

The AEI is based on information obtained from ONS’ Monthly Wages and Salary Survey (MWSS). It is used to calculate annual rates of increase, based on the average of the seasonally adjusted index values for the latest three months compared with a year earlier.

Average earnings are obtained by dividing the total amount paid by the total number of employees paid, including those employees on strike and temporarily absent. The headline rate of increase, introduced in April 1998, replaces the previously published ‘underlying rate’.

The data are compiled using the latest index methodology and data validation routines. These allow ONS to ensure that all significant components of change in the index are quantified and validated with the contributing enterprise. A new sample, fully representative of the economy, was introduced in October 1999 and ongoing rotation of the sample will ensure that it remains representative.

Indices are published for the whole economy and public and private sector earnings. The indices for manufacturing and services, including private sector services are also published in the Labour market statistics First release.

The AEI is not designed to measure levels of earnings - these are estimated by the New Earnings Survey and the Labour Force Survey. The AEI only covers earnings in Great Britain, as earnings information is not collected for Northern Ireland and regional data are not available.

Changes in the composition of the workforce - such as the proportion of the workforce employed full-time or part-time or in skilled or unskilled capacities - can affect the path of the index, but this is inherent in a measure of average levels of pay per employee rather than the average pay rate. No adjustments are made for changes in hours worked, notably overtime, although increases in average pay as a consequence of increased overtime will be correctly reflected in the index.

Information on bonuses is provided by all respondents to the survey that pay them during the reference period. Bonus payments are recorded for the month in which they are paid, rather than for the period to which they relate. Thus an annual performance bonus paid at the end of a financial year may be recorded in the data for March or April, whereas the bonus is paid for work conducted over the whole of the financial year.

Bonus data are only available since May 1996 and therefore it is only possible to calculate growth in pay excluding bonuses since May 1997. In addition, the bonus data are subject to a discontinuity in the series. This is a result of a change in the survey questions on bonuses, introduced in February 1999, data for the period preceding that month are not comparable with those that follow it.