The post credit crunch period in the UK has seen a labour market performance of two halves. The good part has been the way that employment has been strong as illustrated by the latest official Economic Review.
The UK labour market continued to show its strength in the 3 months to April 2016, with the employment rate among those aged 16 to 64 increasing to 74.2%, up from 74.1% in the 3 months to January 2016 and 73.4% over the year.
This is a factor in the unemployment rate fall to mid-2005 levels. However the less good part has been the way that wage growth has broken with past relationships and remained weak. Old employment models ( some of which exist unchanged in Ivory Towers) would predict wage growth of the order of 4-5% if they looked at the employment/unemployment situation. Whereas the reality is of numbers close to 2%. The welcome improvement in real wage growth has in fact mostly come because of lower inflation rather than any acceleration in wage growth.
Employment for older people
There are no doubt some in the older age groups who welcome the availability of work, however some may be less willing.
Female participation over the age of 60 has increased by 21.8% since 2010, almost double that for males, and is likely to be heavily influenced by the increase in the state pension age for females in recent years.
One thing we can be clear about is that “early-retirement” is less frequent now and that this has impacted on the labour force.
The increase in the activity level over the age of 50 represents the largest driver of the growth in the activity level for men and women since 2010,
Tucked away on its website the Office for National Statistics has done some in depth research into self-employment. Let us remind ourselves of the basic theme at play here.
The level of self-employment in the UK increased from 3.8 million in 2008 to 4.6 million in 2015.
However this added to something which seems to have begun from around 2001 as we note like in my analysis of Monday that the credit crunch has often added to pre-existing trends.
While this strong performance is among the defining characteristics of the UK’s economic recovery, the recent rise in self-employment is the extension of a trend started in the early 2000s.
We do learn some other things as well.
Part time self-employment grew by 88% between 2001 and 2015, compared to 25% for the full-time mode. As a result, part-time self-employment accounts for 1.2 percentage points of the 1.6 percentage point increase in the self-employment share of all employment between 2008 and 2015.
There seem to be various factors at play but the research suggests much of this is older people using it as a way of transitioning to unemployment and if asked say they are happy with their lot. Indeed there is a clear group who have had high earning jobs and seem content with their lot. We also get an insight into both which economic sectors they are in and also the geography.
The fraction employed in finance and business services has risen considerably, they are relatively concentrated in the South East and London
We even get a brief glimpse of the wages/earnings situation.
Analysis also suggests that those moving from employee positions to self-employment tend to have somewhat higher pre-transition hourly earnings than workers moving to new employee positions: trends which are more consistent with workers making a positive choice, rather than being forced to be self-employed.
So a hint for some of them at least. For newer readers the reason I highlight this is that the self-employed are excluded from the official wages series data, both the monthly average earnings series and the annual ASHE survey. This was never a good state of play and it gets worse as the number of self-employed grows.
In terms of quantity the situation continues to improve.
The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.4%, the highest since comparable records began in 1971……The unemployment rate was 4.9%, down from 5.6% for a year earlier. The last time it was lower was for July to September 2005.
However the price of labour continues to disappoint as we see that even in what looks like very favourable circumstances ( this is what was previously described as full employment) it does this.
Average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.3% including bonuses and by 2.2% excluding bonuses compared with a year earlier.
So real wage growth relies on low inflation which is troubling if you expect inflation to rise as I described only yesterday.
Between March to May 2015 and March to May 2016 in real terms (that is, adjusted for consumer price inflation) regular pay for employees in Great Britain increased by 1.8% and total pay increased by 1.9%.
Those who prefer our old inflation measure the Retail Prices index or RPI can knock around 1% off that. Oh and that self-employment issue will not go away.
self-employed people increased by 300,000 to 4.79 million (15.1% of all people in work) ( this is over the past year).
The numbers above are before the Brexit referendum but we do get a look from the Agents of the Bank of England about the post referendum economy.
A majority of firms spoken with did not expect a near-term impact from the result on their investment or staff hiring plans. But around a third of contacts thought there would be some negative impact on those plans over the next twelve months.
So for the majority L.I.F.E.G.O.E.S.O.N as Noah and the Whale put it whilst some have fears about activity slip-sliding away. The real question is to whether the latter group feel this temporarily or more permanently.
The official data tells us a rather hopeful story. Here we have strong employment growth which has pushed the unemployment rate much lower and real wages are growing. The cloud in that silver lining is that wage growth is very low for such circumstances. Also there are some more pages you can tear out of your economics textbooks such as the ones covering “full employment” and NAIRU ( Non accelerating inflation rate of unemployment).
Meanwhile if we dig deeper we see signs that the official picture is too rosy. For example whilst I welcome the extra research into the self-employment sector we need to know much more about what they earn and where it stands on the choice/compulsion spectrum. Also there is the issue of underemployment which our official monthly data misses out. According to the TUC it exists.
There were 2.3 million people underemployed in early 2008, however underemployment rose rapidly following the recession and reached 3.4 million in early 2014. It has fallen slowly in the last year to reach just under 3.3 million in early 2015 – but this is still over 900,000 higher than it was before the recession.
Hopefully it has improved over the last year and there is an official update suggesting it fell to 8.9% in the first quarter of this year. But it is apparently outweighed by overemployment of 10.5%!
Meanwhile at the stroke of a pen or indeed movement of a computer mouse reported reality can get better. From the Institute for Fiscal Studies.
Prior to this year, DWP’s official statistics adjusted for inflation using the (now discredited) Retail Prices Index (RPI). Given that RPI inflation is generally higher than CPI inflation, this means that trends in living standards now look more favourable than did previous versions of the government’s statistics.
Time for Freddie Mercury and his band mates.
It’s a kind of magic,
It’s a kind of magic,
A kind of magic,