What Were the UK Earnings and Prices Then? A Question-and-Answer Guide

Lawrence H. Officer, University of Illinois at Chicago

Often historians and statisticians use (and in fact misuse) the term “cost-of-living index.” This name also is rejected here in favor of CPI, because the series is not a true cost-of-living index: the series does not measure the minimum expenditure required to keep the consumer at a given level of well-being.

What is the meaning of "earnings"?
"Earnings" is an extension of "wages". Wages are generally contractual, paid in cash (money), and cover a specified ("normal") number of working hours per time period. Earnings consist of wages plus non-cash (in-kind) payments plus bonuses plus commissions plus remuneration per output accomplished ("piece-rate payments") plus payment for overtime (hours exceeding the normal number per time period).

What is the time period to which "earnings" refers?
"Earnings" is short for "earnings rate". For the time period 1770-2002, earnings are weekly; for the earlier period, 1264-1769, earnings are daily. Thus the earnings series are really earnings-rate series: in particular, weekly earnings-rate for 1770-2002, daily earnings-rate for 1264-1769.

What is meant by "average" earnings?
So now, the earnings concept considered is "average weekly earnings-rate" or "average daily earnings-rate." In principle, the word "average"is used in a triple-sense. First, "average" pertains to the number of observations per year. For example, if weekly earnings are recorded for the last week of every month, then there are 12 observations to be averaged to obtain the annual figure. Second, "average" pertains to the occupations and industries the earnings for which (that is, for each occupation within each industry) are averaged to obtain a total-economy figure. Third, "average" refers to each individual worker's earnings in a given occupation within a given industry, which earnings are averaged to compute the earnings for that occupation within that industry. Of course, these averages are taken in reverse order of exposition. In practice, the computation of average earnings is not so logical; but the principle remains.

What is the difference between "nominal" and "real" earnings?
The earnings concept is now complete. The two series are "average nominal weekly earnings-rate" and "average real weekly earnings-rate". (Of course, "daily" is be substituted for "weekly," for the earlier period.) "Nominal weekly earnings" are earnings expressed in money terms: for example, 100 pounds for the year 2000. "Real weekly earnings" are "nominal weekly earnings" adjusted for the price level relative to a base year. For example, suppose that in 2000 prices were (on average) double what they were in 1987 (the actual base year for the series). Then real weekly earnings in 2000 were only 50 rather than 100 pounds.

Does that explanation suggest a relationship among the three series?
Yes. All three series are expressed as index-numbers relative to the base year 1987 having a value of 100. "Average real earnings" is "average nominal earnings" divided by the "consumer price index," then multiplied by 100 so that the value for 1987 is 100.

Does that relationship imply that the "consumer price index" is a measure of inflation?
Certainly - but only for inflation pertaining to purchases of households or consumers. That is why the term is "consumer price index".

Isn't "average nominal earnings" also a measure of inflation?
Yes; the "average nominal earnings" series shows how a worker's money earnings changed over time, without correcting for inflation.

Does "average real earnings" indicate the "standard of living" of the population?
It does - but only imperfectly. The standard of living depends on more than just earnings. The following are some examples:
     (1) Workers may be unemployed for all or part of the year - an element not considered in either earnings series.
     (2) Families might have more than just one worker (spouse and even children may work), and earnings of multiple workers are not incorporated in the series.
     (3) Income from sources other than work can be obtained: interest, dividends, rent, welfare payments, unemployment insurance, gifts.
     (4) There are changes over time in the quality of life - such as safety, environment, density of population, and access to education - and these changes are not captured in the real earnings series (still less, in the nominal-earnings series).

How can the earnings and consumer-price-index series be obtained for so lengthy a time period (1264-2002), involving data over nine centuries?
The only way that this accomplishment is possible is by using data series from many different sources and linking the series, so that continuous long-run series are obtained. Thus the series are in fact composed of various component series, each for a specific subperiod.

What is the territory covered by the series?
For 1770-2002, the territory is either Great Britain (England, Wales, and Scotland) or the United Kingdom (Great Britain and either all Ireland or Northern Ireland). For 1264-1769, the territory is either all of England, or Southern England, or London.

What industries are covered by the earnings series?
For 1770-2002, all industries are included; for 1264-1769, only agriculture and building.

What occupations are covered?
For 1264-1769, sometimes all occupations, but sometimes only manual occupations ("blue-collar" workers). For 1770-2002, sometimes all occupations, sometimes unskilled laborers and skilled workers, sometimes only unskilled laborers.

How can more be learned about the three series?
"What Were the U.K. Earnings Rate and Consumer Price Index Then? A Data Study".

Please read our Note on Data Revisions.