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

Gregory Clark, University of California, Davis

What is the territory covered by the series?
For 1209-1963, the territory is England, which now has 84 percent of the total population of Great Britain. For 1963 to the present, the territory is Great Britain (England, Wales and Scotland), which has now 97 percent of UK population.

What is the Retail Price Index (RPI)?
The retail price index in its modern form is a measure of the cost of goods to consumers, and is an approximation to a cost of living index, which in its ideal form would be a measure of the relative money cost each year of a consumer achieving the same standard of living.

What is the meaning of "earnings"?
"Earnings" here represent an estimate of the total monetary value of the compensation an average worker in full time employment would get each year. Earnings thus includes wages, non-cash (in-kind) payments, bonuses, commissions, remuneration per output accomplished ("piece-rate payments"), and overtime supplements. 1870-1962 earnings are estimated from weekly wages, and are just those wages multiplied by an assumed 52 weeks of payment per year. 1209-1869 earnings are estimated from daily wages, assuming each worker worked for 312 days per year (6 days a week, for 52 weeks).

There us thus no adjustment in these measures for the fact that hours of work, even for full time workers, are now much less than the typical 3,000 hours per year of pre-industrial England. Were such an adjustment made, so that we calculated hourly wages, then instead of wages rising 10 fold between 1209 and 2010, they would instead have risen nearly 20 fold.

What workers are covered?
For the modern period, 1963 to the present, the earnings data covers all full time workers. For the earlier years average earnings are projected backwards looking just at the movement of earnings in a sample of occupations. Before 1869 these occupations are just those of men in farming (which employed typically 60 percent of the population before 1750), coal mining, and skilled and unskilled building workers – carpenters, bricklayers, painters, masons, plumbers, glaziers, plasterers, thatchers, and laborers. Average wages are inferred on the assumption that the relative wages of women relative to men did not change 1209-1869, and that the share of women employed also did not change in these years.

The price data covers the UK from 1870 to the present (with Britain is now 97 percent of the population of the UK), and England 1209-1869.

What is the difference between "nominal" and "real" earnings?
Nominal earnings shows what workers were paid in the money of the time. Because there has been such great inflation over the last 800 years, nominal average earnings per year in 1209 were only £2, compared to £23,433 in 2010, a 10,000 fold increase. However, since the prices of all items a worker consumed also increased many times, real earnings did not increase nearly as much. The real earnings index shows what the earnings in any year would correspond to in terms of what the worker could buy in 2010 prices. For the 1209 worker the corresponding real wage is £2,355, almost exactly one tenth of the modern figure.

Does that explanation suggest a relationship among the three series?
Yes. "Average real earnings" is "average nominal earnings" divided by the "consumer price index," then multiplied by 100 so that the value for 2010 is the same as average nominal earnings.

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 which look just at full time workers.
     (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. If more women, for example, now work then average family earnings will have increased more than average wages.
     (3) Many workers also have explicit or implicit income from sources other than work. Many workers own their own house, which pays an implicit rent to them. Others own stocks and bonds, or property they rent to others.
     (4) Modern governments collect significant taxes from wages, but provide transfers and services to workers – medical care, education, public roads, police, pensions. Some families will be net recipients from this tax and transfer system, others will be net payers.
     (5) 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 (1209 to the present), 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.

How can more be learned about the three series?
"Average Earnings and Retail Prices, Great Britain, 1209-2010".

Please read our Note on Data Revisions.