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Scottish Economic Statistics 2005

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P ay in Scotland - Annual Survey of Hours and Earnings

Marina Hughes, Scottish Executive

Introduction

The publication of the results of the Annual Survey of Hours and Earnings ( ASHE) by the Office for National Statistics ( ONS), on 28th October 2004, introduced a major change to the methodology and reporting for earnings estimates. This article explains the new methodology underpinning ASHE and provides a summary of results for Scotland.

Background

ASHE, carried out by ONS, replaces the New Earnings Survey ( NES) as the official source of earnings estimates. NES was introduced in 1970 as a survey to provide detailed information on earnings. The survey has a large sample size, based on a one per cent sample of employees. Earnings and hours information is sourced from employers. It does not cover people who are self employed.

The earnings information collected relates to gross pay before tax, national insurance or other deductions, and excludes payments in kind. It is restricted to earnings relating to the survey period, and any payments due as a result of a pay settlement but not yet paid at the time of the survey are excluded. In 2004 information related to the pay period which included the 21st of April.

The development of ASHE is part of the ONS statistical modernisation programme to improve methodologies and to make use of new statistical tools. The improvements in methodology caused a discontinuity between the previously published NES figures and the 2004 ASHE results. However, ONS reworked the NES data, for 1998 to 2003, using the new ASHE methodology. Revised earnings estimates for 1998 to 2003 were published by ONS on 15 October 2004, which applied the new ASHE methodology to the NES data. Results from the 2004 survey were published on 28th October 2004.

New methodology

The new ASHE methodology addresses the weaknesses in the NES design, which led to the production of biased earnings estimates. The main changes to the methodology are:

Weighting

The NES results were not weighted to a population. The ASHE results are calibrated to employee totals from the Labour Force Survey ( LFS). Deciding on the calibration groups (or strata) depends on which variables are best associated with pay. Analyses carried out by ONS showed that occupation was the dominant factor. In order to calculate the weights the ASHE responses are divided into a cross section of the following:

  • Occupation - Standard Occupation Classification 2000 ( SOC 2000) - 9 Major Groups
  • Gender - 2 Groups
  • Region - (London and South East) and Other in UK - 2 Groups
  • Age - 16 to 21, 22-19 and 50+ - 3 Groups.

This gives 108 strata (9 Occupations * 2 Genders * 2 Regions * 3 Age Groups). The region split reflects the fact that the earnings are much higher in London and the South East compared to the rest of the UK (see Table A2.4). The age split reflects the National Minimum Wage age bands.

Weights are available from the LFS only back to 1992 so NES is the definitive source for earnings between 1970 and 1991. As yet ASHE data has only been published for 1998 to 2004, quality assurance of the earlier data has to be completed before publication of estimates for 1992 to 1997.

Improved coverage

The NES sample captured only those jobs registered on the Pay As You Earn ( PAYE) scheme, which meant that those who earned below the PAYE threshold (low earners) were not represented. There was also an issue around not including people who had changed or started new jobs between sample selection and the survey reference period.

To improve coverage and hence make the survey more representative, supplementary surveys were carried out for the 2004 ASHE. One survey to capture employees working for companies with turnover below the PAYE threshold and/or earning below the PAYE threshold. And another survey to capture those who had changed jobs between the survey dates.

The 2004 ASHE results are therefore discontinuous with the previous years' results, for which no supplementary information was collected. However, for 2004 two sets of results were published; the headline results that include supplementary information and results that exclude this information. The latter are given solely for comparison to earlier results.

Imputation

In the NES design, if a respondent had not answered one question (or item) then this would not be an issue since the statistics were not weighted. However, the ASHE is weighted thus problems occur with item non-response. This is because item non-response requires the derivation of different weights for different variables in the survey (which would be possible but time consuming). To keep things simple, imputation is used to fill in the missing information thereby allowing just one weight to be used. Specifically, donor imputation is used where values from respondents with similar characteristics to the respondent with the item non-response are used to derive an estimate of the missing value.

Median

The median replaces the mean as the headline average statistic. The median is the value below which 50 per cent of employees fall. It is preferred over the mean for earnings data as it is influenced less by large or extreme values. The median earnings figures are significantly lower than the mean earnings figures because the median is less influenced by high earners.

Reporting ASHE results

NES estimates were suppressed on quality grounds if they were based on a sample of less than 30 or the coefficient of variation (standard error of an estimate as a percentage of the estimate) was above 5 per cent, which ensured confidentiality too. For the ASHE results, however, the suppression for confidentiality and quality are separate. Confidentiality is ensured by using standard ONS rules to have a minimum of three respondents contributing, while no one employer is dominant. Outside of this, all estimates are publishable but are given alongside quality criteria whereby estimates are presented with their coefficient of variation (cv). This allows more detailed analysis but also increases the chances of the data being stretched or misused. The quality criteria are as follows:

Quality Criteria

*

Precise CV <= 5%

**

Reasonably precise CV > 5% and <= 10%

***

Acceptable CV > 10% and <= 20%

Unreliable CV > 20%

The above coding is used in the presentation of tables of Scottish results later in this article.

Impact of new methodology on NES data

The impact of the new methodology can be assessed by comparing the old NES estimates to the revised estimates ( ASHE methodology applied to the NES data) for 1998 to 2003.

As Table A2.1 shows, the revised ASHE estimates are higher than the previous NES estimates. This is mainly the result of the weighting pulling the estimates up. This is because those in the SOC 2000 major groups 1-3 (Managers and Senior Officials, Professionals, Associate Professionals), which tend to have higher earnings, are poor responders to the survey but with the weighting they are given proportional representation.

Table A2.1: Mean gross weekly earnings and growth (year on year) for full-time employees 1 in Scotland, April 1998 to 2003

Year

NES Estimate (£)

Revised ASHE (£)

Difference (%)

NES Growth (%)

Revised ASHE Growth (%)

1998

350.00

360.20

2.9

-

-

1999

370.10

377.00

1.9

5.7

4.7

2000

383.00

388.60

1.5

3.5

3.1

2001

404.90

411.10

1.5

5.7

5.8

2002

427.00

434.60

1.8

5.5

5.7

2003

436.90

446.10

2.1

2.3

2.6

Source: Annual Survey of Hours and Earnings
1 Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Impact on estimates by gender

Tables A2.2 and A2.3 show that for men the increase in estimates of earnings is, generally, more than the increase for women. This is connected to the weighting push up, since men are more likely than women to be in the high earning-low responding group ( SOC 2000 major groups 1-3).

Table A2.2: Mean gross weekly earnings and growth (year on year) for full-time male employees 1 in Scotland, April 1998 to 2003

Year

NES Estimate (£)

Revised ASHE (£)

Difference (%)

NES Growth (%)

Revised ASHE Growth (%)

1998

394.60

406.90

3.1

-

-

1999

411.80

421.70

2.4

4.4

3.6

2000

423.00

434.50

2.7

2.7

3.0

2001

448.50

457.20

1.9

6.0

5.2

2002

473.70

485.10

2.4

5.6

6.1

2003

483.70

497.10

2.8

2.1

2.4

Source: Annual Survey of Hours and Earnings
1 Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Table A2.3: Mean gross weekly earnings and growth (year on year) for full-time female employees 1 in Scotland, April 1998 to 2003

Year

NES Estimate (£)

Revised ASHE (£)

Difference (%)

NES Growth (%)

Revised ASHE Growth (%)

1998

276.70

290.20

4.9

-

-

1999

306.80

311.60

1.6

10.9

7.4

2000

316.10

318.90

0.9

3.0

2.3

2001

342.30

344.40

0.6

8.3

8.0

2002

360.10

360.20

<0.1

5.2

4.6

2003

372.40

374.50

0.6

3.4

4.0

Source: Annual Survey of Hours and Earnings
1 Full-time employees on adult rates whose pay for the survey period was not affected by absence.

ASHE results for Scotland

Throughout the following analysis, headline results for 2004 include the supplementary surveys but for time series analyses the 2004 data excluding the supplementary surveys are used to ensure comparability. Annual earnings are rounded to the nearest pound, weekly earnings are rounded to the nearest 10 pence and hourly earnings are rounded to the nearest penny.

Gross weekly full-time earnings - Scotland

The median gross weekly earnings of full-time employees in Scotland, in April 2004, were £392.70. Gross weekly earnings of full-time employees increased by 3.5 per cent over the year to April 2004. Women's median full-time weekly earnings increased by 6.0 per cent, which was higher than the increase for men at 3.3 per cent.

Chart A2.1: Median gross weekly full-time earnings by gender, Scotland, April 1998 to 2004

Chart A2.1: Median gross weekly full-time earnings by gender, Scotland, April 1998 to 2004

Source: Annual Survey of Hours and Earnings
Full-time employees on adult rates whose pay for the survey period was not affected by absence

Gross weekly part-time earnings - Scotland

The median gross weekly earnings of part-time employees in Scotland, in April 2004, were £126.90. Gross weekly earnings for part-time employees increased by 3.7 per cent over the year to April 2004. Gross weekly earnings for part-time female employees were £129.70 in April 2004 compared to £113.50 for men. Part-time female pay tends to be higher than part-time male pay (Chart A2.2). This is partly due to a higher proportion of females working part-time in their careers, whereas for men the majority of part-time jobs are filled by students or those over 50. The ASHE 2004 employee job figures revealed that 82.7 per cent of part-time jobs were filled by women, which is reflected in Chart A2.2 with the trend for earnings of all part-time employees shadowing that of female part-time employees.

Chart A2.2: Median gross weekly part-time earnings by gender, Scotland, April 1998 to 2004

Chart A2.2: Median gross weekly part-time earnings by gender, Scotland, April 1998 to 2004

Source: Annual Survey of Hours and Earnings
Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Regional earnings - Scotland's position in the UK

The median gross weekly earnings of full-time employees in Scotland, in April 2004, were £392.70. This was £29.40 per week (7.0 per cent) less than the UK figure. Scotland was ranked eighth amongst the 12 standard government office regions of the UK, in terms of median gross weekly earnings for full-time employees (Table A2.4). The differences between the regions ranked fifth to eighth are very small; there is only a 90 pence difference between the eighth placed region (Scotland) and the fifth placed region (West Midlands). London was the region with the highest median gross weekly earnings per week (£540.80), £91.70 higher than the second placed South East.

Table A2.4: Median gross weekly earnings of full-time employees 1, UK, April 2004

Region

Median Gross Weekly Earnings (£)

Rank

United Kingdom

422.10

London

540.80

1

South East

449.10

2

East

422.30

3

North West

397.10

4

West Midlands

393.60

5

South West

393.00

6

Yorkshire and Humberside

392.90

7

Scotland

392.70

8

East Midlands

385.50

9

Wales

383.20

10

North East

372.60

11

Northern Ireland

372.30

12

Source: Annual Survey of Hours and Earnings 2004
1 Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Table A2.4 shows there is wide gap between the earnings of employees working in the rest of the UK compared to London. However, these comparisons do not consider the cost of living in each region thus standard of living cannot be assessed. Also it is not a like with like comparison since the occupational and/or industrial make-up of each region is not the same. For example, London has a stronger financial sector (a high paying sector) than any other region. The 2004 ASHE employee jobs figures reveal that 11.6 per cent of all full-time employee jobs in London are in the financial sector compared to 4.6 per cent in the rest of the UK (Scotland at 5.1 per cent).

Gender Pay Gap

The gender pay gap is measured by comparing the average (mean or median) hourly pay of full-time employees, excluding overtime, for men and women. Including overtime would bias the results since men work relatively more overtime than women. Using the earnings of full-time employees is preferred since women are much more likely to work part-time compared to men.

Median hourly earnings, excluding overtime, for full-time women on adult rates was £9.13 in April 2004, which was 88.7 per cent of that for men. This represents a gender pay gap of 11.3 per cent in Scotland, which is lower than the gender pay gap for the UK at 14.4 per cent. Chart A2.3 shows that the gender pay gap has been decreasing for the past few years.

Chart A2.3: Pay gap between women's and men's hourly earnings, excluding overtime, Scotland, April 1998 to 2004

Chart A2.3: Pay gap between women's and men's hourly earnings, excluding overtime, Scotland, April 1998 to 2004

Source: Annual Survey of Hours and Earnings
Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Although the gender pay gap provides a useful comparison between the earnings of men and women, it does not necessarily indicate differences in rates of pay for comparable jobs. Pay medians are affected by the different work patterns of men and women, such as the proportions in different occupations, industries and their length of time in job.

Distribution of earnings

In Scotland, in April 2004, the median gross weekly earnings for full-time employees were £392.70. At the bottom end of the distribution, a tenth of full-time employees earned less than £220.90 per week, whereas at top end of the distribution a tenth earned more than £742.40 per week (Chart A2.4). Over the period 1998 to 2004, the lowest decile value grew faster than the highest decile value (28.4 per cent compared to 26.9 per cent). This could be a result of the National Minimum Wage being implemented in 1999 (which benefits the lower paid). The ratio of the highest decile to lowest decile value, which measures the dispersion of earnings, has not changed much over the period 1998 to 2004 (3.4 in April 2004).

Age

The 2004 ASHE estimates of median gross weekly earnings for full-time employees increased with age to reach a maximum of £445.70 for those aged 40 to 49 but dropped back down for those 50 and over. However, considering the results by gender, women's median gross weekly pay peaked earlier than that of men. Full-time women's gross weekly pay increased with age to reach a maximum of £380.90 for those aged 30 to 39, whereas men's earnings peaked at £490.70 for those aged 40 to 49 (Chart A2.5).

Chart A2.4: Distributions of gross weekly full-time earnings, Scotland April 1998 to 2004

Chart A2.4: Distributions of gross weekly full-time earnings, Scotland April 1998 to 2004

Source: Annual Survey of Hours and Earnings
Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Chart A2.5: Median gross weekly full-time earnings by gender and age, Scotland, 2004

Chart A2.5: Median gross weekly full-time earnings by gender and age, Scotland, 2004

Source: Annual Survey of Hours and Earnings 2004
Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Occupation

The ASHE 2004 data for occupation are coded to Standard Occupational Classification ( SOC) 2000. In 2004, the occupation group with the highest median gross annual earnings for full-time employees was managers and senior officials at £30,273 per year, followed by professional occupations at £29,582 per year (Chart A2.6). However, those in professional occupations had the highest median hourly earnings (£16.10), higher than the median for managers and senior officials (£14.69) (Chart A2.7). The change in position between annual earnings and hourly earnings is a result of managers and senior officials receiving higher annual incentives and working longer hours than those employees in professional occupations.

Chart A2.6: Median gross annual full-time earnings by occupation, Scotland, 2004

Chart A2.6: Median gross annual full-time earnings by occupation, Scotland, 2004

Source: Annual Survey of Hours and Earnings 2004
Full-time employees on adult rates who have been in the same job for over a year.

Chart A2.7: Median gross hourly full-time earnings by occupation, Scotland, 2004

Chart A2.7: Median gross hourly full-time earnings by occupation, Scotland, 2004

Source: Annual Survey of Hours and Earnings 2004
Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Industry

The ASHE 2004 data for industry is coded to Standard Industrial Classification ( SIC) 2003. In Scotland, in 2004, median gross weekly earnings for full-time employees was highest in the Electricity, Gas and Water Supply sector at £517.30 per week, followed by the Mining and Quarrying sector at £498.60 per week (Table A2.5). However, the mean gross weekly earnings for full-time employees was highest in the Mining and Quarrying sector at £635.20 per week, indicating that there is a number of high earners in this sector that skew the distribution. The median gross weekly earnings for full-time employees was lowest in the Hotels and Restaurants sector at £241.30 per week, less than half the median earnings for the highest paying sector.

Table A2.5: Median and Mean gross weekly earnings of full-time employees 1 by industry, Scotland, April 2004

Industry

Median (£)

Mean (£)

Agriculture, Forestry, Hunting and Fishing

**323.20

**375.70

Mining and Quarrying

***498.60

**635.20

Manufacturing

*397.80

*472.20

Electricity, Gas and Water Supply

**517.30

*570.80

Construction

*421.40

*490.90

Wholesale and Retail Trade

*313.40

*395.50

Hotels and Restaurants

*241.30

*279.10

Transport, Storage and Communication

*387.60

*449.60

Financial Intermediation

*431.90

*520.10

Real Estate, Renting and Business Activities

*392.50

*499.40

Public Administration and Defence; Compulsory Social Security

*465.70

*491.90

Education

*444.20

*467.10

Health and Social Work

*392.70

*454.20

Other Community, Social and Personal Service Activities

*316.40

**407.90

Source: Annual Survey of Hours and Earnings 2004
1 Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Public and Private Sector

In Scotland, in April 2004, private sector median gross weekly earnings were £366.90, lower than the public sector earnings of £438.10 (a gap of £71.20). Private sector mean gross weekly earnings (£451.20) were also lower than those for the public sector (£475.50) but the gap was smaller (£24.40). This reduction in the gap when using the mean is because of the skewed distribution of high earners in the private sector.

Chart A2.8 shows public and private sector median gross weekly earnings over the time period April 1998 to April 2004. Over the period public sector median gross weekly earnings grew quicker than private sector median gross weekly earnings (27.0 per cent compared to 24.0 per cent). Thus the pay gap between the private sector and public sector has increased over the period from 13.6 per cent in 1998 to 15.6 per cent in 2004 (the pay gap is measured as the percentage difference between public sector earnings and private sector earnings so in 2004 employees in the private sector earned 15.6 per cent less than employees in the public sector).

Chart A2.9 shows the gap between the public sector and private sector for all employees, men employees and women employees. The gap is clearly wider for women than men. In April 2004, median gross weekly earnings for full-time women private sector employees was £292.80 compared £414.40 for women public sector employees, that is private sector women's earnings were 70.7 per cent that of public sector women's earnings (representing a gap of 29.3 per cent). In fact, the 2004 ASHE results show that the median gross weekly earnings for full-time women public sector employees was higher than those for full-time men private sector employees, though earlier years show the converse.

The differences in gross weekly earnings do not reveal differences in rates of pay for comparable jobs. The types of occupations in the private sector differ considerably to those in the public sector. For example, the ASHE 2004 results show that 38 per cent of employee jobs in the private sector are in the top three high earning occupation groups (Managers and Senior Officials, Professionals and Associate Professional and Technical) compared to 59 per cent of employee jobs in the public sector.

Chart A2.8: Median gross weekly full-time earnings by sector, Scotland, April 1998 to 2004

Chart A2.8: Median gross weekly full-time earnings by sector, Scotland, April 1998 to 2004

Source: Annual Survey of Hours and Earnings
Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Chart A2.9: Public/Private sector pay gap of median gross weekly earnings of full-time employees, Scotland, April 1998 to 2004

Chart A2.9: Public/Private sector pay gap of median gross weekly earnings of full-time employees, Scotland, April 1998 to 2004

Source: Annual Survey of Hours and Earnings
Full-time employees on adult rates whose pay for the survey period was not affected by absence.

Conclusion

The new ASHE earnings estimates are more representative of the workforce and there is more detailed information available at all levels than was available from the New Earnings Survey. Previous estimates have been revised upwards; for men the increase in estimates of earnings is greater than the increase for women.

Further analyses

Earnings by local authority areas in Scotland can be found in Chapter 4 of this publication (Table 4.19).

More detailed information and results on ASHE are available on the National Statistics web site at: http://www.statistics.gov.uk/STATBASE/Product.asp?vlnk=13101

The Scottish Executive has access to the ASHE micro-data for 1998 to 2004 so ad hoc analyses can be carried out on request from:

Labour Market Statistics Branch
Analytical Services Division
Enterprise and Lifelong Learning Department
Scottish Executive
5 Cadogan Street
Glasgow
G2 6AT

Tel: 0141 242 5446
Email: labour-market.statistics@scotland.gsi.gov.uk