We advance today on a new set of labour market data for the UK which will inform us more about the state of the post EU leave vote economy. However the last few days have seen the beginnings of a shift in the labour market landscape. It was only on the 8th of this month I looked at the numbers for Zero Hours Contracts but since then we have seen signs of ch-ch-changes. From the Trades Union Congress or TUC.
The TUC has welcomed the decision of pub chain JD Wetherspoon to become the latest major UK employer to offer permanent hours to staff on zero-hours contracts.
The details are below.
Founder and chairman of JD Wetherspoon, Tim Martin, said a trial earlier this year to offer guaranteed hours have proved so successful, it was being rolled out UK wide.
Mr Martin said: “We’ve already offered guaranteed hour contracts to a percentage of our workforce and they’ll all be offered one in the next three months.”
This is significant as Weatherspoons is/was a large user of ZHCs.
The pub chain employs 24,000 people on zero-hour contracts.
This is I believe more than Sports Direct. This means that we may be seeing something of a trend.
Wetherspoon joins Sport Direct and McDonald’s in offering staff on casual contracts the opportunity to become permanent employees.
In general I think that this is a good thing. However care is needed because back in the day when I was an impecunious student I worked in a pub a couple of evenings a week to earn some money and whilst the work was regular there was no permanent contract in fact only a verbal one.
Some Perspective on Wages
The UK ONS published some research in its monthly review which showed that the UK labour market is very tight.
As discussed in a previous edition of the Economic Review, there is evidence to suggest the UK may have experienced a significant tightening of labour market conditions in recent years.
Why do they think this?
In mid-2015, the unemployment-to-vacancy ratio dipped below its 2002 to 2007 average in mid-2015 for the first time since mid-2008, reflecting both falling unemployment numbers and rising vacancies for several years. It has more recently reached 2.2 in the 3 months to June 2016 – its lowest level since November to January 2005.
This matters as they consider the 2002 to 07 period to be stable on this front and of course it was the boom time. Just to give an idea of the credit crunch impact it rose to 5.7.
The ONS lose the plot a little here so let me help out by borrowing a chart used by Graeme Wearden of the Guardian.
If you look at the period since last summer you see that the rate of wage growth has been falling. It peaked back then at 3.1% on a rolling 3 month basis or 3.4% on a monthly basis yet in a tighter labour market we now have this.
Between May to July 2015 and May to July 2016, in nominal terms, regular pay increased by 2.1%, lower than the growth rate between April to June 2015 and April to June 2016 (2.3%).
Wage growth has slowed as another Ivory Tower leans like it is in Pisa and then falls. Indeed if we look back to what now seems like a golden period which is 2002 to 2007 then let me tell you what wage growth was then. It opened at 3.8% dipped for a while but saw peaks of 5.3% in February 2005, 5.5% in April 2006 and then the peak of 6.6% in February 2007. Actually on a single month basis February 2007 reached 7.6%. Could it be much more different?
This is one of the reasons that places like the Bank of England and the Office for Budget Responsibility have got the credit crunch so wrong and produced economic forecasts which would be laughable if the subject matter was not so serious. They assumed the wages world described above would return whereas it has not.
Why might this be?
There has been a lot of debate over the “Elephant Curve” of Lakner and Milanovic. Or more formally the Lakner-Milanovic global growth incidence curve
Now this has been argued to show that the poorest are locked out of economic growth then that the middle classes in places like China are booming. Next though we get the crux of the matter for us in the UK and indeed west because it shows a poor run and indeed some decline in parts for the bit covering the developed world’s middle-class. Then, surprise surprise, a booming global elite!
Now this is contentious to say the least as it is too easy to blame globalisation for everything and this from Torsten Bell of the Resolution Foundation is true as well.
To fetishise globalisation as the cause of all our ills is to let too many domestic policy makers off the hook for decisions they make, for problems they leave unaddressed and for the lower incomes working people experience as a result.
If we move away from the exact numbers as there are issues around compositional changes over time for example and move to the principle I think that the Elephant Curve is definitely onto something. Maybe not everything but something….
The UK employment situation remains pretty stunning in the circumstances.
There were 31.77 million people in work, 174,000 more than for February to April 2016 and 559,000 more than for a year earlier.
It gave the UK another joint highest employment rate and led to this as well.
There were 1.63 million unemployed people (people not in work but seeking and available to work), 39,000 fewer than for February to April 2016, 190,000 fewer than for a year earlier and the lowest since March to May 2008.
So far so good then although there was a rise in the claimant count.
For August 2016 there were 771,000 people claiming unemployment related benefits. This was:2,400 more than for July 2016 and 21,300 fewer than for a year earlier.
So a rise although care is needed as this is an experimental statistic because of the shambles over Universal Credit or as it is officially put.
estimates are still being developed by the Department for Work and Pensions.
For further perspective this is the series critiqued back in 1983 in Yes Minister by Jim Hacker.
There is good news that these continue to rise.
Between May to July 2015 and May to July 2016 in real terms (that is, adjusted for consumer price inflation) regular pay for employees in Great Britain increased by 1.7% and total pay increased by 1.9%.
However the picture is by no means as happy if we use the Retail Price Index measure of inflation which is now just under 2% in its main variants. As we expect it to rise we are likely to soon see an end to real wage growth using it unless we can manage an increase in wages. Using the official measure will take longer because it is invariably lower but in time that seems on the cards as well. That is sad because as the Resolution Foundation point out we have yet to get back to the previous peak.
Wkly earnings unchanged between Jun-July, suggests no imm. referendum effect. They remain £21 below pre-crisis peak
We have seen today that the UK labour market continues to look very strong on a quantity level albeit with a rise in the ( unreliable) claimant count. As we look to other measures we get a more worrying picture as wages are the dog that has not barked. The economic future will be grim if real wages do turn lower without reaching their previous peak. I think that the Elephant Curve has flaws but also has a point as we have to face up to the fact that the economic world has clearly changed and that maybe we should be pleased to have wage growth both real and nominal at all. If we lost it would that provide another verse for the song Turning Japanese?