Today brings us to the labour market report for the UK. Over the period of the credit crunch the quantity numbers have performed very well and scare stories from some economists of 3 or 4 million unemployed have been replaced by record employment and falling unemployment. However we are now in a phase where we are much less sure that unemployment will continue to fall. Also the quality number or wage growth has been somewhere between poor and not so good. In spite of an economy recovery which began in 2013 wage growth has only managed about half of what we would have expected pre credit crunch.We can put this into numbers as those in the Ivory Tower of the Office for Budget Responsibility predicted this back in 2010.
Wages and salaries growth rises gradually throughout the forecast, reaching 5½ percent in 2014.
This reminds us that the long-term trend here has been for wage growth to decline. The improvement in the real wages picture which has been extremely welcome in boosting both consumption and living-standards mostly came about because consumer inflation fell to historically low levels.
What about the self-employed?
Regular readers will be aware that the official average earnings numbers exclude the self-employed and in fact the smaller businesses. This has led to concerns expressed both by me and in the comments section that there would at least be sections of those self-employed with a poorer record for wages growth (and perhaps falls) than stated in the official statistics. This has become an increasingly important issue as the number of people self-employed has grown.
Yesterday the Resolution Foundation released some new research on this subject and it did attract attention for this.
Remarkably, this data suggests that typical earnings for the self-employed were lower in 2014-15 than in 1994-95, twenty years earlier. …….. From their peak (2006-07) to trough (2013-14), typical self-employment earnings fell by 32% – £100 per week.
Ouch! So self-employed earnings have had their own private economic depression. How does this compare with the overall picture?
A fall of 15% compares to a rise of 14% in typical employee earnings
As with ordinary earnings it found that some of this was compositional as in caused by the fact that the newly self-employed were less likely to employ others and worked fewer hours leading to this conclusion.
This analysis suggests that, over the 2001-02 to 2014-15 period as a whole, compositional effects were responsible for over 60% of the fall in average earnings (and there may be other compositional factors that we have not accounted for here), with the remainder being a purer earnings effect.
That still leaves a large gap with the official average earnings series to explain. Also the grim truth is that the credit crunch era did bring outright falls in income for the self-employed.
However, between 2008-09 and 2013-14, while there was still a negative compositional drag, the large majority (86%) of the substantial fall over this period is not explained by compositional effects.
More than a few questions are posed here and some of the answers are hard to find. Some may have been happy to switch from employment to self-employment and others may have been happy to work fewer hours, but it is hard to avoid the few that some were forced to and others were involved in underemployment. As the numbers grow this becomes a bigger issue.
the number of self-employed has grown from 3.3m (11.9% of the workforce) in 2001-02 to 4.5m (14.7%) in 2014-15
There was a flicker of better news at the end which suggested that the economic recovery had finally fed through to the self-employed.
More recently, compositional changes played a positive role and together with strong growth within groups meant a rise in average income in 2014-15
So we hope that this trend continued but we do not do so. The analysis above relies on the Family Resources Survey which has considerable lags in the data it provides.
Back in the day (2008) this was all reviewed by Martin Weale latterly of the Bank of England and recently appointed a Fellow of the ONS. In all his Ivory Tower pages of maths the little people slipped through his net.
Note that firms employing fewer than 20 employees are not surveyed.
I doubt it seemed important to him at the time….
Let us open with what remains good news.
The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.5%, the joint highest since comparable records began in 1971…….There were 23.23 million people working full-time, 362,000 more than for a year earlier. There were 8.58 million people working part-time, 198,000 more than for a year earlier.
Thus we see that more people are employed and the growth these days is not as heavily biased to part-time work as it was. Wages growth nudged higher than we were told last month too.
Average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.3% both including and excluding bonuses compared with a year earlier.
In the meantime so of last month’s data has been revised higher too.
Not so good news
This comes from a nudge higher in unemployment.
There were 1.66 million unemployed people (people not in work but seeking and available to work), 10,000 more than for March to May 2016 but 118,000 fewer than for a year earlier.
Actually this was a type of sexism if you note this.
There were 765,000 unemployed women, 23,000 more than for March to May 2016 but 37,000 fewer than for a year earlier.
I would welcome readers thoughts on why male unemployment fell but women’s rose?
There is an issue here as in spite of the fact that in the latest 3 months wage growth was 2.3% we know that inflation is on the rise. Indeed if we look at the monthly series wage growth in August was 2%. That seems to have been driven by a big swing in bonuses payments from up 8% to -6% but nonetheless we face a position where our real wage growth fades a fair bit if this continues into September and meets an official CPI inflation rate of 1%.
If you look at Retail Price Inflation (2%) then we are now facing the distinct possibility that real wage growth has either ended or faded to a low-level.
Whilst the situation remains strong overall there is an obvious concern with the rise in unemployment which whilst small overall will matter to the 10,000 concerned. Also there is the issue that we are seeing unemployment rise for women which may be a quirk but may not. But for real wages it would appear that the words of the latest Nobel winning poet are appropriate.
The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
And the first one now
Will later be last
For the times they are a-changin’.
Will that end the apparent improvement for the self-employed?