Today sees the latest labour market figures from the UK and let us celebrate what has been a good news story which is the rise in employment. The February Economic Review puts it thus.
The strength of the labour market and the increase in employment of particular has been one of the defining features of the economic recovery.
Indeed the employment rate may well be as good as it has ever been in current lifetimes although changes in the data series make it difficult to be absolutely sure.
The employment rate among those aged 16 to 64 rose from 70.1% in the three months to November 2011, to 73.0% in the three months to November 2014 and to 74.0% in the three months to November 2015: the highest level since at least 1971.
We do not celebrate this enough and it certainly was not expected by the UK establishment because the other side of the coin has been an equally welcome fall in unemployment.
the headline unemployment rate fell from 8.5% to 5.1% over the same period.
How do I know they did not expect it? Well the increasingly hapless Governor of the Bank of England would not have put this at the centrepiece of his original and now many times replaced Forward Guidance.
In particular, the MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate has fallen to a threshold of 7%,
Something has changed over the past year
There has been a change in the pattern of work which reverses what has so far been a feature of the recovery above. Let me give you the bigger picture first.
Average actual hours of work fell from 33.1 hours per week in the three months to November 1995 to 32.0 hours in the same period in 2007, before falling to 31.5 hours in the three months to November 2009. This trend reversed during the economic recovery, returning average actual weekly hours to its pre-downturn level by 2013.
So pre credit crunch weekly hours worked were gently declining which it kicked lower then it recovered like the other numbers above. But more recently it has done this.
However, in recent months average hours have weakened slightly again.
Whilst it looks worrying it may be a sign strength and confidence actually.
this movement is consistent with workers taking advantage of stronger real earnings growth or having the confidence to take more holidays relative to the past few years.
Or on the less positive side it could be that employers are responding to the slowdown in economic growth.
One thing that does seems to be certain is that fewer people are working longer hours of the order of 50 or 60 a week. Their numbers were reduced by the Working Time Directive but the fall seems to have started again. Also you may have a wry smile at the statistical issue that some part-timers work more than a full-time week. Oh well!
Zero Hours Contracts
There are people who are recorded as working no hours in the numbers above but the obvious answer is incorrect. These are pretty much those who are either ill or on holiday. For those who want to know the Zero Hours situation it is this.
The estimated average usual weekly hours for people employed on a zero hour contracts has been around 25 hours in recent years.
So overall good news which has continued this morning as shown below.
The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.1%, the highest since comparable records began in 1971 (and) 205,000 more than for July to September 2015
The rub as Shakespeare would put it is that this sort of analysis does on the subject on underemployment but if far from a full analysis of it. Also we have the issue of the number of employed continuing to rise as the economy slows according to the economic growth (GDP) figures. As the great Yogi Berra reminded us.
It is just like deja vu all over again…
These numbers do not go well together.
the UK economy grew by 0.5% in the final quarter….. total weekly hours worked grew by 1.7% in the latest quarter,
What about wages?
This was a bad news story as above target inflation sent real wages into a tailspin but more recently we have been in a better phase. However this is fading as the monthly growth rate has been falling since the annualised 3 month average reached 3% in late summer as you can see below.
Average weekly earnings for employees in Great Britain increased by 1.9% including bonuses
The idea of a fading of the numbers was reinforced by the fact that December on its own registered growth of 1.5% which was another slowing and was also below the 2.5% of December 2014.
If we move to real wages we see that the situation was given quite a boost by the decline in inflation. This is one of the clearest areas where I am different from economists both and pandering to the UK establishment as they had a blind spot to the way that the inflationary surge of 2010/11 pushed real wages lower and hope for short memories as the lower inflation now pushes them higher. Why do they do this? Because the official view is that inflation is good for us when it is plainly not.
If we leave that matter to the consciences of those who put personal advancement ahead of reporting reality we see that the good news story is that real wages have been in a much better phase. Indeed incomes have according to the Resolution Foundation finally broken new ground.
We estimate that median income is roughly 3 per cent higher than in 2007-08, standing at around £24,300.
Actually on traditional measures of inequality we are doing better as well. However there is something of a swerve in this as it is pensioner incomes (think triple lock) which have done much of this and the wages position is improved but still.
Typical hourly pay looks unlikely to return to its peak before the end of the decade and there is very little sign that any of the ‘lost growth’ of recent years will ever be restored.
Another failure for the output gap theory that the Bank of England and many economists have clung to through thin and thin during the credit crunch era. Or to put it another way the Resolution Foundation has tweeted this today.
Still a long way to go in the earnings recovery, with average weekly pay £27 short of peak.
If we look at the quantity measures we see that the UK economy has put on an extraordinary performance over the past 3 years or so. Employment has surged and unemployment has fallen substantially and I welcome that unequivocally and pre credit crunch it was what economists were asking for although some have redacted that! The flies in the ointment on these numbers have been worries about underemployment and the issue of zero hours contracts.
The issue of quality or wages has been much more troubled as it took a while to pick-up firstly in response to the employment improvement and then to the later GDP one and has now faded in the latter part of 2015 as the monthly peak of a 3.6% annualised rate in July has been replaced by 1.5% in December. The monthly figures are unreliable but the trend in this period has been clear. We are seeing a better phase for real wages being driven pretty much entirely now by lower inflation. What do our establishment want to do with that? Drive inflation higher! Those who argue for higher inflation are implicitly arguing for lower real wages well for everyone else anyway.
Now after a really good run on all numbers we are facing an issue that the unemployment rate rose to 5.3% in December and total wage growth fell to 1.5% and of course we also know that GDP growth was weaker in the latter part of 2015 as well. So we need to cross our fingers for the early part of 2016 and remember that as long ago as 1983 in Yes Prime Minister Jim Hacker told us that the numbers were manipulated. Time for EMF.
The things, you say
Your purple prose just gives you away
The things, you say