The UK labour market gives a different view on construction output

Today sees the latest labour market data for the UK and as well as employment and unemployment numbers we get the most crucial metric of these times which is the average earnings data. However having noted that the BBC Breakfast business section informing everyone that we will get post Brexit data the picture is in fact more complex than that as the main numbers only cover June so we will only get a flicker, maybe. That is unless you wish to base your analysis on the long discredited claimant count numbers. I still remember the Yes Minister episode from 1983 which cast doubt on them. So what we will really get is a much clearer idea of the effect on the uncertainty caused by the run-up to the referendum.

What has been the impact of migrants on the UK labour market?

The Resolution Foundation has looked at the impact and decided this.

The increase in inward migration experienced over the course of the past decade coincided with a stagnation and then a fall in earnings, which some have linked.

They give us an idea of the change that took place.

It is now estimated that there are approximately 8.1 million migrants (or non-UK born individuals) living in the UK, up from 3.5 million in 1993

We learn something about wages as well.

On pay, migrants from the countries that joined the EU in 2004 earn around £8.30 an hour, compared to approximately £11.10 for natives. Workers from the EU ‘original’ countries earn the most, while the earnings of native workers and workers from the rest of the world are similar.

However they conclude this.

The result of our version of this approach shows that, in aggregate, migrants have had no effect on the wages or employment prospects of natives. However it is wrong to say that migration has had no effect at all on native wages because this overall picture masks the fact that across the distribution of natives of different educational levels or in different occupations there has been some effect, albeit very small.

Later though we get something which is rather awkward for that conclusion. The numbers below cover the 15 occupation sectors where we see the most migrants present. The highest percentage is in food manufacture and production where 25.5% of the workers are migrants.

Pay in these sectors averages £9.32 an hour, significantly below average native wages of £11.09. We know that lots of workers in these sectors are migrants from the EU ‘accession’ countries, whose average earnings are £8.33, £2.76 below that of natives

Sadly there is a fair bit of politicking in the report which as ever I have avoided. However I am l not convinced by the argument that you can be sure of a result by running an Ivory Tower style regression analysis. If you have a large increase in labour supply as it looks like food production has seen and then relatively low wages I am unclear as to how you can argue that effect is “small”. I would suspect that someone who had worked in that area might not think so. Care if needed though because there are quite a few areas that are much less affected and it is also true that this did not cause lower wages on its own but looks like something which gave them a nudge lower.

Today’s numbers

Firstly we saw a rather familiar trend in employment continue.

There were 31.75 million people in work, 172,000 more than for January to March 2016 and 606,000 more than for a year earlier…..The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.5%, the highest since comparable records began in 1971.

On the other side of that coin we also saw this.

There were 1.64 million unemployed people (people not in work but seeking and available to work), 52,000 fewer than for January to March 2016, 207,000 fewer than for a year earlier and the lowest since March to May 2008.

So the quantity situation continues on a positive path and the number below hints at a good quarter for productivity as measured by output per hour as we recall that GDP growth was 0.6%.

 ( Hours worked were ) 1.2 million (0.1%) more compared with January to March 2016

If we move to the wages numbers they were slightly better as well.

Between April to June 2015 and April to June 2016, in nominal terms, total pay increased by 2.4%, little changed compared with the growth rate between March to May 2015 and March to May 2016 (2.3%).

Moving to real pay we see this.

Between April to June 2015 and April to June 2016 in real terms (that is, adjusted for consumer price inflation) regular pay for employees in Great Britain increased by 1.9% and total pay increased by 2.1%.

Thus we learn that the picture running up to the Brexit referendum looks of the Goldilocks variety with employment rising, unemployment falling, real wages rising and probably productivity improving as well.

As to the one post Brexit number we got here it is.

For July 2016 there were 763,600 people claiming unemployment related benefits. This was: 8,600 fewer than for June 2016 (the first monthly fall since February 2016) and 27,100 fewer than for a year earlier.

So a fall except I stick with my point from earlier in the article that whilst we learn something from this care is needed. However it is hard not to have a wry smile at this from the Guardian an hour or so before.

Economists polled by Reuters are expecting a 9,500 jump in claims last month, following a rise of 400 in June.

Single month analysis

We can drill down further to single months but this also comes with a dose of caution. What we see on this basis is that wages growth was unchanged in June at 2.2% whereas employment did this 74.2% (April) then quite a surge to 74.7% in May then 74.6% in June. So it was better than the previous quarterly high but was a dip on May.

June did see a rise in the unemployment rate to 5.1% so maybe some pre Brexit uncertainty but it did come with the employment numbers described above.

Comment

Let me open with something which highlights the fact that we cannot take official numbers as gospel. Remember the lower construction output data? From @NobleFrancis

Construction employment in April-June 2016 was 2.0% higher than in January-March & 5.4% higher than a year ago.

I have made the point that these are inconsistent and they are. Here are the replies I got from him and another source of data in this area.

Lag indicator? Mix of work – building employs > infrastructure? But I don’t disagree with you  ( @brickonomics)

it would still be odd to see rising employment despite lags. ( @NobleFrancis )

So we know less than we sometimes think. We can say that the run up to the referendum was not “the end of the world as we know it” but we have a mixture of signals here. We could see upwards revisions to construction output which changes the narrative there and the numbers today are overall good. But the silver lining does come with a cloud which is the hint of more unemployment in June.

As to the Bank of England Agents they expect flat employment over the next 6 months and this for wages.

Growth in total labour costs had edged higher in manufacturing, but was little changed overall, with the majority of pay awards remaining in a range of 1%–3%.

 

 

 

 

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20 thoughts on “The UK labour market gives a different view on construction output

  1. Interesting figures! No doubt if the rise of 9,500 claimants had occurred it would be proof of a Brexit disaster and the BofE would be ready to act again. A rise of 9,500 would only be an increase of around 1% and we are bound to get fluctuations either way (which applies to all economic data) as this is the normal functioning of an economy plus seasonal variations. It worries me enormously that central banks, markets and economists place such emphasis on small movements and that central banks react accordingly. It is impossible to micro manage an economy and they should stick to putting the right level of rates and stimulus in place and then sit back and wait until a long term trend is evident. Too much knee jerk reaction these days. Particularly from the media who really do not understand what they are reporting on.

  2. The increase in inward migration experienced over the course of the past decade coincided with a stagnation and then a fall in earnings, which some have linked.

    4 1/2m extra people and SOME link it?

  3. Hi Shaun

    Are any of these data subject to seasonal adjustments?

    The reason I ask is that in the US the much awaited jobs report is basically an extrapolation of trends with a huge seasonal adjustment on top and the net result is that it is, at bottom, almost totally meaningless and utterly misleading yet the Fed regards it as being an important indicator. If the numbers are seasonally adjusted then wouldn’t it be better to publish the raw numbers as well so that comparisons can be made?

    The more one looks at these things the more it seems it is a hall of mirrors “full of sound and fury but signifying nothing” and yet markets and policymakers hang on even twitch and turn in order to justify yet more easing ( the policy response is of course totally asymmetric).

    • Hi Bob J
      Yes indeed the UK mirrors the US to some extent with its use of statistical techniques. For years it used the X11 program , followed by variants and laterly more use of ‘factor analysis’. A wonderful technique first developed for pyschology research, using eigenvalues and mutually orthogonal vectors to attempt to remove spurious correlations and produce underlying factors that explain patterns. Unfortunately the factors have little or no relationship with the original variables used, so great statistical significant correlations , but no practical use.
      Besides pyschology and economics, factor analysis is the bedrock of programs used to forecast ‘climate change’. Nuff said!

  4. Hi Shaun

    Great article as always. What i find amazing is that no-one has accurate or complete sets of data. In this age of mobile technology, cloud computing etc this is inexcusable. Surely there must be a way to get accurate information rather than extrapolating from a small set.

    Or maybe they don’t wish too…

    • hehe

      most of whitall couldn’t find their posterior from their elbow as far as IT tech goes …….

      I’m sure they’re still on slide rules and slate at time……..

      Forbin

  5. “…. fact that we cannot take official numbers as gospel…..”

    no really ? LOL!

    if the figures fit them all is good , if not fiddle them until they do !

    I guess all those people went into the sex & drugs trade

    saving the economy with greater GDP and lower employment

    shame about the tax receipts

    Forbin,

    sit back and enjoy the show , BBC commentards rightly dropped the real world for fantasy gold medals winners – making headlines , not money

    here have some popcorn

  6. Do EU migrants lower food processing wages ? Pre 2004, I think the agricultural workers came in from Eastern Europe on seasonal work visas – often for several months in summer. So I’d question the assumption that employers would pay higher wages without EU expansion. Secondly, I’d question whether British farms could find enough domestic labour without immigrants.

    In 2004, I had a British plumber quote me £500 per day cash in hand, to fit my bathroom. I got the work done cheaper by an Eastern European. Consumers can benefit from lower wages, so without Eastern Europeans in agriculture and assuming higher wages for Britons employed -> I’d suggest this means higher food bills for British consumers.

    So I think immigrants do lower wages, some locals benefit and others suffer from wage competition.

    • Well if you will live in Belgravia, what do you expect?

      That was a seriously overpriced plumber. By comparison a good friend has just retired from the NHS as professor of neurosurgery and he earned £320 per day.

      • Jeeez! I paid £355.00 for a 1 hour private consultation for my mother with a neurosurgeon a couple of years ago, yet I understand the NHS pays the same as consultants/surgeons are not “employees” of the NHS but rather subcontract their services to the NHS.

        Are you sure about this Pavlaki or am I comparing apples (professor of neurosurgery) with pears (a hands on neurosurgeon)?

        On plumbers, a self employed one expects £300.00 per day before expenses and VAT application around here so it looks like your friend seriously underpriced himself.

        • Yes definitely correct and he is (was) definitely hands on. Private consultations are much more expensive per hour than NHS.

    • take it from me – if he didnt like you or didn/t want the job he’ll put up a silly offer

      after all if you accept he’s quids in

      I know a few trades men 😉

      Forbin

      • Didn’t want the job -> agreed. It proves that immigrants are not taking British jobs because the Brits have too much work available.

  7. Hi Shaun
    As many have said before more
    accurate statistics of any kind is not what
    TPTB want.
    I just looked up JW’s “factor analysis”
    and instantly remembered “a centroid of a lamina”
    which seems to be a geometric comparison, it
    was of no use to me in the 60’s and it still isn’t!
    So with hedonics we seem to be headed toward
    more massaging of the statistics.

    We need straight figures as the crow flies,this fella
    is the 2nd best live act that I’ve seen.


    JRH

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