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Pay deals are increasing, according to IDS

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Most pay deals are being awarded at or above 2%, according to the latest data from the Incomes Data Service.

Seven out of every eight pay settlements recorded between December 2010 and

February 2011 were at or above 2%, while two-fifths of deals were at 3% and above.

The median settlement for the whole economy is 2.5% in the latest IDS analysis, covering the three months to the end of February.

An early look at April deals suggests pay increases may be picking up further as high inflation continues to have an impact on real wages. April pay reviews are not yet included in the current rolling three-month analysis, but most of the April deals recorded thus far by IDS have set pay increases at 3% or higher.

Retail Price index (RPI) inflation, which is typically used as a reference for pay awards, has now risen to 5.5% in the year to February.

Three quarters of employers awarded higher increases this year than in 2010, as shown by a matched sample analysis. In the 120 settlements at 60 companies where IDS matched year-on- year data, the median award in 2011 is 3%. This compares to a figure of 1.3% recorded at the same organisations in 2010, of which two-fifths of settlements resulted in pay freezes.

The overall median increase of 2.5 per cent for the three months to the end of February 2011 is unchanged from the revised figure for the three months to January. The figure for January was revised downwards from 2.8 per cent as more January deals were recorded. Although a few firms continue to freeze pay in the latest analysis, this trend is falling in the private sector, with less than one-in-ten firms imposing a freeze in the latest analysis.

The private services sector has seen higher pay awards than other sectors over the three months to the end of February, with a median settlement level of 2.9 per cent, compared to a median of 2.5 per cent recorded in manufacturing. Both the overall median settlement level and the manufacturing median mask a range of outcomes, with a number of higher end increases awarded at 4% or more.

However at the same time, pay increases at not-for-profit organisations have been subdued, possibly reflecting lack of certainty over funding.

A large number of public sector pay deals are due in April, with freezes looming for most staff in these employee groups. If private sector awards continue to follow inflation upwards, we are likely to see a growing divide in pay settlements opening between the public and private sectors.

Ken Mulkearn, editor of IDS Pay Report, said: "The figure for the median pay rise masks a range of outcomes. While some firms are still paying awards at low levels, higher inflation is exerting upward pressure on pay. And while employees worry about the gap between their pay increases and the rising cost-of-living, employers have to consider the level of pay award necessary to recruit, retain and motivate staff given factors including inflation and other concerns such as affordability and profits."