Pay in Britain has long lagged behind the United States, with the average worker earning £17,000 less per year.
The average salary was just over £52,000 in the US last year, according to the US Bureau of Labor Statistics. But the UK equivalent was £35,000, according to the Office for National Statistics (ONS).
A recent report from the Social Market Foundation think tank found that Americans are a third richer than the average British person. Why are salaries so much higher in the United States?
Big disparities
Three years ago, US burrito chain Chipotle advertised that new hires could quickly make a $100,000 (£80,000) salary. The viral tweet became a sensation.
Fast-food workers in the UK make £18,000 a year on average, according to job search engine Glassdoor. How could their American counterparts be eyeing up a six-figure salary?
The case became a stand-in for all that was wrong in the country’s economy, from productivity to inactivity to the tax burden.
This disparity persists in 2024. Employment platform Indeed shows manager positions at Chipotle locations over the past 12 months advertised average earnings of $55,500 – equal to £44,400 at the current exchange rate. In Britain, the same position pays £10,000 a year lower.
An entry-level “crew member” job in Eureka, California advertises a pay range up to £21.50, or £17.20, depending on experience. The same position in Putney, in south-west London, offers £11.30 as a base rate. But Chipotle – and fast-food workers – are not outliers.
Across different industries, there are huge disparities between British and American salaries.
Lawyers are a prime example. According to the US Bureau of Labor Statistics, the mean annual wage for those employed in “legal occupations” was just under $134,000 last year, or £107,000. ONS data shows workers engaged in “legal activities” in the UK made an average of £47,000 – less than half.
It is the same case for barbers and hairdressers, who stand to make the equivalent of £33,000 a year across the pond, yet take home little over £15,000 here. It is similarly acute for translators and interpreters, who make £50,500 in the US versus £24,500 in the UK.
It is not the case in every industry – travel agents, for example, earn an average of £40,000 a year in the US and £38,000 in the UK, and gambling services workers make £31,000 in the US versus £29,500 here.
Broad industry comparisons like this, however, come with the caveat that the jobs included within these sector categories may differ, as may the tasks and responsibilities within the jobs themselves. The other benefits included also highlight the difference between wages and compensation.
Why is Britain so far behind?
Real wages – the value of pay cheques after accounting for inflation – flatlined in the UK for years. After growing by an average of 33pc a decade between 1970 and 2007, stagnation set in after the financial crisis.
The recession in the US was shallower, and it recovered from it faster. This is borne out at the economy-wide level. Real US GDP grew by 2.5pc in 2023, compared to just 0.1pc for the UK – the country’s worst performance since 2009, and one capped off in the closing months by a slip into recession.
In the short term, things are changing. According to Indeed, earnings in the UK grew by 6.5pc over the year to the first quarter of 2024 – relative to 3.1pc in the US.
Yet think tank the Resolution Foundation is doubtful of the longevity of this trend, with the UK’s unshakeable productivity problem to blame. Describing the value created per worker for each hour worked, in 2023 the figure came to $70 in the US and just $59 in the UK.
The Resolution Foundation noted that productivity in the UK actually fell over the 12 months leading up to the final quarter of 2023. It seems unlikely, therefore, that the £17,000 gulf between average annual salaries on either side of the Atlantic will close any time soon.
The compensation question
It is no secret that European employees are legally entitled to a host of benefits – which US workers can only negotiate for or dream of. In many cases, America proves a stand-out for all the wrong reasons in this regard.
British people on a contract get a statutory minimum of 28 days paid annual leave, including bank holidays. The US is alone among advanced economies in not having any such provision. Although it varies from job to job as a result, American employees tend to get 10 days annual leave on average.
Eligible UK employees are also free to make use of up to 52 weeks of paid maternity leave, and up to two weeks of paternity leave. The US equivalent, introduced some as recently as 1993, gives new mothers only 12 weeks off, well below the World Health Organization’s (WHO) 16-week recommended minimum.
Those in the UK also have a guaranteed £116.75 a week statutory sick pay for up to 28 weeks should they be unable to work due to ill health. There is no such safety net at a federal level in the US, and only a handful of states have their own compensation schemes.
The treatment British workers may require during this time is also free at the point of use in the NHS. The private model in the US means uninsured workers would have to pay out a considerable sum during this period. Research has found some 3 million Americans have over $10,000 in medical debt.
Living standards lagging
But do these extras actually make up for lower wages? Especially since the tax burden – a portion of which goes towards funding the NHS – is far higher in the UK than in the US.
HMRC tax revenue over the past financial year works out to just over £1 trillion, or 40pc of GDP – the highest level since the early 1980s. The equivalent US rate is below 28pc.
Purchasing power parity (PPP) adjusts wage figures for the amount of goods and services in a common basket people in different countries can buy – the purchasing power for each unit of currency. Far from redressing the US/UK imbalance, this equalisation makes it starker.
OECD data shows that in real terms 2022 dollars PPP, US employees made $78,000 a year to the UK’s $54,500 – some 43pc less. This means UK workers are considerably worse off than their US counterparts, all things considered.
The US’s low tax, low regulation environment has maintained its lead in this domain for more than a century. The UK would need to maintain the unprecedented 3.5pc real wage growth lead over the US in the first quarter of 2024 on an annual basis for eight years to catch up.
