The UK economy is now approaching the mature stage of its current boom. Along the way we have had quite a few things to welcome as the economic situation in terms of quantity measurements turned for the better. If we look at unemployment it rose to a peak of 8.4% in late 2011 but was we moved into 2012 began its long and welcome decline to 5.4%. It took economic growth or GDP figures around another year to move towards such a positive trend leading to debate over which indicator was the better guide. Also we need to remember that it took GDP growth per capita much longer to move into positive territory and only did so early this year.
If we look at it like that then the major gains in employment and declines in unemployment have already been seen. Hopefully we can still manage some improvements especially in the area of “underemployment” which is not well measured in the UK statistics. This months official Economic Review puts it like this.
Unemployment is close to its long-term, pre-downturn average (they define this as 5.1% in the period 2002-07)
However at this stage of the game the emphasis moves onto the price measure or wages which should now see sustained improvements. This is reinforced by the low level of inflation which depending on your measure is in a range between -0.2% and 0.8% right now which means that the Bank of England is looking directly at the wages numbers for a sign of a turn in the inflation cycle. This of course piles even more pressure on the data.
A Longer Term Perspective
In 2015 UK wages have emerged into the sunlight blinking after a long cold almost nuclear winter but Monday’s analysis of the Living Wage again reminded us of the damage it did and the emphasis is mine.
In real terms (after adjusting for inflation), the London Living Wage rose by 3% between 2008 and 2014 while median hourly pay for employees aged 18 and over in London fell by 10% in real terms.
Also in terms of the Living Wage there was a consequence from this.
Between April 2008 and April 2010, the proportion of jobs paid less than the living wage in London was stable at around 13%, but it had risen to 19% by April 2014.
The numbers so far are London centric simply because the data was collected there first so let me widen it out with what we have.
For the rest of the UK, where only 3 years of estimates are available, the proportion of employee jobs paid less than the living wage rose from 21% in April 2012 to 23% in April 2014.
You are not going to be surprised by the fact that the two sectors which most frequently crop up as payers of less than the minimum wage are care and cleaning. Regular readers will also not be surprised to see it impacting on the younger age group but they may be surprised at the size of the numbers.
In 2014, 48% of employee jobs in the 18 to 24 age group in London and 58% of jobs in this age group in the rest of the UK were paid less than the living wage.
Here we saw more good news on this front.
total pay for employees in Great Britain increased by 3.0%…..average total pay (including bonuses) for employees in Great Britain was £494 per week before tax and other deductions from pay.
As the official measure of inflation is so low we see that virtually all of this growth is in real terms.
total pay for employees in Great Britain increased by 2.9%
If you use the Retail Price Index then real wage growth falls to more like 2% with RPIJ being pretty much in the middle of the two headline measures.
If we move to the latest month which is August we saw total pay rise at an annual rate of 3.1% led by construction at 6.4%. For once this tallies with this morning’s report from the Bank of England Agents.
construction firms were much more likely to plan to increase pay across the board, hire foreign labour and even turn some work away, than was the average survey respondent,
This is problematic only in that the official numbers tell us that the construction sector is shrinking. I have suggested in the past that those numbers are (sadly) not worth the paper they are written on and see no reason to change my view.
As wages have improved so has productivity as we wonder which of these is the chicken and which is the egg.
Output per hour worked grew by 0.9% in Q2 2015
Should this remain true then the UK wages/productivity situation looks as though it is in something of a sweet spot certainly when compared to recent years. Whilst I am not a fan of extrapolating pre credit crunch trends there is a nugget of truth underlying the quote below.
Had productivity continued to grow at this rate, output per hour in Q2 2015 would be almost 15 percentage points higher than the recent estimate.
Employment and Unemployment
In contrast to the fears of us approaching the definition of “full employment” provided by the ONS above we saw good numbers this morning on this front too.
The employment rate has been generally increasing since early 2012 and for the latest time period, June to August 2015, it reached a record high of 73.6%.
This has been driven by more employment for women which in terms of sexual equality is welcome although those women working on to the new later pension ages may have a different perspective on that!
As to unemployment we saw a further fall.
The unemployment rate for those aged 16 and over for June to August 2015 was 5.4%. This was:down from 5.6% for March to May 2015 and down from 6.0% for a year earlier.
However we do get a counterpoint as this is nowhere near a record.
the lowest unemployment rate recorded since comparable records began in 1971 was 3.4% in late 1973 to early 1974
It is nice to be able for once to review a UK labour market where everything seems to be going in the right direction at once. In spite of us reaching record levels for employment and approaching the 21st century definition of full employment we have seen improvements in both measures. Added to this we are seeing solid wage and thereby real wage growth numbers which so far are being backed up by productivity improvements. In Goldilocks terms the porridge is just right at the moment at least according to the official statistics. Oh and speaking of gold it has rallied up to recent highs and its 200 day moving average so let us have some John Stewart.
There’s people out there turning music into gold
We even hear the Gold Dust Woman herself on backing vocals as we hope that his friend has seen a pay rise in the meantime.
Ah, my buddy Jim Bass, he’s a-working pumping gas,
And he makes two-fifty for an hour.
He’s got rhythm in his hands as he’s tapping on the cans,
Sings rock and roll in the shower.
So if we skip the worrying hints of a downturn in the UK economy we can enjoy some late autumn sun albeit with a chilly wind. For the UK construction data series though it needs to go back to its beginning or perhaps Genesis.
Tell me why, this is a land of confusion.
Speaking of confusion it was only yesterday that we were seeing “Deflation” appear in the media again. With employment rising, unemployment falling and wages up by 3%, how does that work exactly?