South West Regional Skills Enterprise and Employment Analysis 2007/2008

Final Report

4.5 Market Signals

The State of the South West Report 2007(27) (produced by the Business and Economy Module)(28) provides an analysis of wages in the region. It highlights the fact that where supply is failing to keep pace with demand, market pressures will tend to raise the price (the relative wage). Where a particular skill or qualification is in short supply, this will be reflected in a change in the price employers are willing to pay for that skill. Examination of trends in pay, pay relativities and rates of return can provide useful information about where investment in skills is likely to reap the greatest benefit.

There is a distinct occupational profile to earnings. Those in so-called higher level jobs that typically require highly-skilled and qualified people earn the most. Evidence on the returns to obtaining additional qualifications (and by implication additional skills) suggests that such investments are rewarded through higher levels of income over the lifecycle and that the rates of return on investment in such qualifications compares well with alternative investments. However, the returns to obtaining a degree are now showing signs of reducing as the number of graduates increases, and they may decline further. Meeting future skill needs will be a great challenge for government, public agencies, individuals and employers.

In 2005, the regional workplace-based estimate median wage for all employees was £401 per week or £10.00 per hour. This equates to approaching 92% of the English median, although these figures were highly skewed by London wages. Excluding London, South West employees earn approximately 98% of the English median weekly and hourly earnings.

The highest regional wages were paid to professional occupations (£30,045), managers and senior officials (£29,855), with the lowest wages paid in sales and customer service occupations (£8,335), and personal service occupations (£9,513). Annual wage levels are reflected in the skills levels required in these professions but it is also likely that employees within these professions work considerably shorter hours.

In the South West, workers earn below the median for all nine occupational groupings, ranging from 89.2% of personal service occupations to 99.4% of elementary occupations. However, there are signs that the rates of growth in some groups are higher in the region. Recently, six broad industrial groups have experienced faster earnings growth than on a national basis. Customer service occupations experienced the greatest difference; 11% nominal growth compared to 1% nationally, and process, plant and machine operatives experienced the smallest increase; 2.6% compared to 4.7% nationally. These match those occupations and sectors where skills shortages and recruitment difficulties have been experienced.

Sub-regionally the picture was again varied, with Torbay and Cornwall earning just 71.3% and 79.9% of the national median full time rate. The sub-region earning the highest level of income was South Gloucestershire which earned 109.2% of the English median. Swindon and North Somerset were the only other two regions to earn above the English median. This reflects a more buoyant labour market where the demand for skills is higher.

Conclusions

The earnings growth being experienced by certain sectors mirror those with recruitment and skills shortage vacancies. This would add weight to the presence of skill gaps in these occupations and sectors.

(27) State of the South West 2007, South West Observatory, 2007
(28) SLIM is grateful to the SWO and the Business and Economy Module for access to this information prior to publication.