UK employment hits a record high but wages are weaker and unemployment higher in December

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,

Productivity anyone?

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.

 

Comment

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
You’re unbelievable

 

 

 

Advertisements

17 thoughts on “UK employment hits a record high but wages are weaker and unemployment higher in December

  1. Hello Shaun,

    I can drive unemployment to zero in one day – everyone unemployed becomes a zero hour contractor …..

    the fact they’ll be doing little work is of no importance 😉

    The real indicators are what are the top 1% doing

    the cost of benefits paid out to those on low wages

    GNP would be good but as the figures are Gerry Mandered possible not much use!

    Forbin

    • Hi Forbin
      It is a long standing problem as the Yes Minister episode I refer to is from 1983. Not everybody realises this as when I went to the Royal Statistical Society for the Bean Review the next question after mine opened with a statement of how much better the figures were and that person ( Chatham House rules) meant methodology!

  2. Hi Shaun

    I confess to having a degree of scepticism about these statistics. Following the BLS saga in the US really does show how misleading some of these figures are.

    Your noting that the employment rate has gone up in the last three years as a proportion of the population but the “population” appears to be the sum of the employed, unemployed and inactive which seems to me to be a self referential calculation rather than what might be called the “common sense” definition of “population”. I’m not saying that the rate has not gone up but I am posing the near rhetorical question: has employment really gone up as a proportion of the population or, does it, like the GDP statistics, merely reflect an underlying increase in the actual (not calculated)population?

    The only way, to my mind, that these statistics square with what I conceive to be the UK position as a productivity laggard is that productivity has indeed declined over the years and that this may be good at the level of a number of individuals but it bodes ill for all of us in the long term.

    Perversely these figures do not show economic success but rather failure; if we were rapidly improving productivity, the only long term way to increase living standards, we would probably see a significant rise in unemployment; and if we went full bore down the AI route we would see huge “unemployment” but very high productivity. I suspect the MSM would see that as catastrophe which just go to show how perverse this whole business becomes.

    • hello Bob j

      As I’ve said before – if we want GDP to be stella we just make India part of the UK and viola!

      instant GDP rise and all our problems solved……. er,….

      Forbin

    • Good thought provoking post as ever Bob.

      To my simple mind, we appear to have more people working part time hours for less money than 2007/8.

    • Where our workforce are generally changing from one-to-many manufacturing and service jobs to one-to-one service ones we are going to continue to see declines in productivity. The same applies with fewer high value jobs being replaced with minimum wage ones especially in the banking and oil sectors.

  3. Hi Shaun
    So you ‘unequivocally welcome’ the manipulated numbers moving in the ‘right’ direction? You can do better than that Shaun!
    Tax receipts ( HMRC) as a %age of GDP always rise in a recovery. But not this time. This time they are still where they fell to after 2008, they are flat-lining. There is no real increase in GDP, its statistical manipulation. There is no real fall in unemployment , there are millions fallen out of the recorded stats. Perhaps a better way of putting it is that there is a significant fall in ‘meaningful employment’.

    • agreed , apparently if you over 55 you’re not counted – even though now you retire at 67 up from 65.

      imputed sex & drugs makes GDP higher , but we cant trust GNP either

      So how do we know ?

      Interest rates and Tax receipts as you state as TPTB havent manage to impute those so far ….

      Forbin

    • ‘There is no real increase in GDP, its statistical manipulation. There is no real fall in unemployment , there are millions fallen out of the recorded stats. Perhaps a better way of putting it is that there is a significant fall in ‘meaningful employment’.’

      Super,super post.Bang on.

      As a for instance,we have legions of people doing the 16 hours tax credits,hordes of students running up £50,000 for the history degree that may help them get a job stacking shelves(I have the right to critiscize History degrees as I have one),many people working two part time jobs to make ends meet and a lot of people on DLA/incapacity.

      If it’s a victory,it’s a pyrrhic one

  4. Shaun,
    Any news on income tax receipts for Jan 2016 – an indication of the success of the self employed or tax credit payments?
    I suspect they are wedded to their smart phone looking for the next short term employment !

    • Hi Chris

      We learnt little today about self – employment income and indeed those at smaller businesses ( cut off is 20 people ). We will get more of a glimpse on Friday when we get the tax numbers for January in the Public Finances statement.

  5. Hi Shaun
    I know that you have stated before that
    you can only comment on available statistics but
    I do not share your positivity and to quote Bowie I
    don’t believe that everything is Hunky Dory.
    I agree with fellow bloggers that january
    tax takings will probably tell another story.I always
    found that vat payments were a more accurate
    reflection of reality, it would be good to have the
    latest government details of various business
    sectors. would it not.

    Ry Cooder

    Everything that makes you rich
    Can make me poor.

    JRH

    • Hi JRH

      You musical quote reminds me of Seasick Steve

      ” I started out with nothing and I still have most of it left” 🙂

      As to the numbers we will find out more on Friday and I have made a mental note after your comment to dig into the VAT as well as the income tax numbers. Perhaps we will see some ch-ch-changes….

  6. The Working Class being ever more efficiently exploited; for that is what hours up, wages down is, is not, in my view, progress. NOT AT ALL!!

    • I see this all the time. Every organisation seems to be outsourcing their IT for example so some bean counter can claim a big saving. Trouble is, from my experience, that you invariably get a shoddy cut-price, reactive, service that simply moves the burden downstream, as the recipient of the service cannot work as efficiently constantly having to work around problems that take ages to fix. It’s just one example, but the drive to reduce overheads often just affects the quality of service provided, so you end up with more hours, less productivity and lower wages all round.

  7. My issues are based on the fact that despite all the good news people around me don’t seem to be much better off.

    1) the employment ratio moving up could well be/is most likely a result for people working less hours.You do have many people showing up twice in the stats as they work two part time jobs for more than 16 hours.
    2) all this employment would surely result in some sort of wage inflation in any normal environment and we’re just not seeing that
    3) we’re running a fiscal deficit of 5% + of GDP.How much real wage growth has occurred in the public sector and how much in the private? I’m none too sure we’re on a sustainable trajectory here.

    All in all,I’m not sure there’s much to celebrate on the figures here.It just seems to be more people working more part time jobs for less money.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s