UK employment improves and so does underemployment

As we look at the UK labour market today let us start with something which in one way is good news and in another poses questions. From Reuters last week.

Manchester United winger Jesse Lingard has signed a new contract that will keep him at Old Trafford until 2021, the Premier League club said in a statement on Thursday.

Lingard, who will earn up to 100,000 pounds a week according to British media reports, has an option to extend the deal by a further year.

Firstly congratulations to Jesse and for once it is nice to see an English player benefit from the largesse of the Premier League these days. There is invariably hype in the exact numbers but he seems to have approximately trebled his wages which will do there bit for the average wages series in the future. However those who watched an outstanding display by Juventus last night in the Champions League as they put Barcelona to the sword have been mulling the concept of relativity. From @Football_Tweet

– Paulo Dybala earns €3M a season at Juventus. – Jesse Lingard earns €6M a season at Man Utd.

we return to a familiar question which is how much of the wages growth is in effect a type of inflation?

The impact of Robots

If we look ahead on a more general level then we can expect to see not only more robots in our economy but more advanced ones appear. Not quite as advanced as the ones in the Foundation saga of Isaac Asimov that I am currently reading again but considerable advances are being made. According to Bloomberg such improvements are likely to have an impact on labour markets and wages especially.

Robots have long been maligned for job-snatching. Now you can add depressing wages and promoting inequality to your list of automation-related grievances.

Industrial robots cut into employment and pay for workers, based on an new analysis of local data stretching from 1990 and 2007. The change had the biggest impact on the lower half of the wage distribution, so it probably worsened America’s wage gap.

The exact results are as follows.

One additional robot per thousand workers reduces the employment-to-population ratio by 0.18 percentage points to 0.34 percentage points and slashes wages by 0.25 percent to 0.5 percent, based on their analysis.

Food for thought as we look forwards in years and decades and of course ground which many of the best science fiction writing has warned about.

Today’s data

The quantity data remains pretty strong as you can see.

There were 31.84 million people in work, 39,000 more than for September to November 2016 and 312,000 more than for a year earlier.

There was an additional kicker to this as we got a glimpse into a potentially improving situation regarding underemployment as well.

with an increase in full-time employment (positive 146,000) partly offset by a fall in part-time employment (negative 107,000)………….strong demand for labour is translating into a shift from part-time to full-time employment, and an increase in the average hours worked per week by both full time and part-time employees.

Here is the analysis of hours worked.

Average hours worked per week increased from 32.0 to 32.4 in the 3 months to February 2017, the highest since July to September 2002, largely due to more hours being worked over the Christmas and New Year period compared with recent years.

Fewer part-time workers are looking for full-time work.

Data released today (12 April 2017) show that this measure continued to contract with the proportion falling to 12.6%, down from 14.2% a year ago (and down from a peak of 18.4% in 2013). This proportion is now at its lowest since March to May 2009, but still well above its pre-crisis average of 8.3%.

So it looks as though the situation regarding underemployment has improved as well although the data is only partial and let us finish this section with the unemployment numbers.

There were 1.56 million unemployed people (people not in work but seeking and available to work), 45,000 fewer than for September to November 2016 and 141,000 fewer than for a year earlier.

What about wages?

These were the same as last month in terms of growth.

Between the three months to February 2016 and the three months to February 2017, in nominal terms, total pay increased by 2.3%, the same as between the three months to January 2016 and the three months to January 2017.

Actually there was a rise in the month of February by 2.9% on the year before so maybe a hopeful hint of a pick-up! We will find out as we go through the bonus months of March and April. One thing we do know is that both Sky News and the Financial Times ( “UK wages have grown at their weakest pace in seven months,”) have not checked this.

The official numbers on real wages are below.

adjusted for inflation, average weekly earnings grew by 0.2% including bonuses and by 0.1% excluding bonuses, over the year, the slowest rate of growth since 2014.

So we have something of a discontinuity as we had some real wage growth in February it would appear. Let us cross our fingers that it continues but sadly it seems unlikely ( the comparison is flattered by bonuses falling last year). Of course even if we use the figures for February alone then real wage growth was negative if we compare it to the Retail Price Index.

Also the exclusion of the self-employed from the wages data gets ever more shameful.

self-employed people increased by 114,000 to 4.78 million (15.0% of all people in work).

Can we increase tax on income from wages?

After the debacle of the U-Turn on higher National Insurance contributions from the self-employed there have been arguments that the UK is unable to ever raise more taxes from income. It was interesting therefore to see some international comparisons from the OECD today.

The average single worker in Belgium faced a tax wedge of 54.0% in 2016 compared with the OECD average of 36.0%…..Belgium had the 4th highest tax wedge in the OECD for an average married worker with two children at 38.6% in 2016, which compares with the OECD average of 26.6%.

Not the best place to be single and childless it would appear! But now the UK.

The average single worker in the United Kingdom faced a tax wedge of 30.8% in 2016……..The United Kingdom had the 22nd lowest tax wedge in the OECD for an average married worker with two children at 25.8% in 2016,

So in theory we could if we wished to reach the peak that is Belgium. The Anglosphere ( US, Australia and Canada) if I can put it like that has similar numbers to the UK although the Kiwis stand out at only 17.9% for a single person. The lowest is Chile at 7%.

Interestingly with its debt and deficit problems income in Japan is slightly more taxed than here.

Comment

I would like to take a step back and consider the last couple of years. Remember the number of economists and media analysts who warned about what they called “deflation” and sometimes they shouted it so loud it was “DEFLATION”? Well it morphed into this.

By late-2014, an increase in nominal wage growth and low CPIH inflation, led to average real earnings increasing by 1.7% in the 18 months to mid-2016. ( Office for National Statistics).

This of course boosted the economy mostly via the retail sales boom but also in other ways as I pointed out on the 29th of January 2015.

However if we look at the retail-sectors in the UK,Spain and Ireland we see that price falls are so far being accompanied by volume gains and as it happens by strong volume gains. This could not contradict conventional economic theory much more clearly. If the history of the credit crunch is any guide many will try to ignore reality and instead cling to their prized and pet theories but I prefer reality ever time.

If there was a musical theme to the deflation paranoia then it was “clowns to the left of me, jokers to the right” from Stealers Wheel. Please do not misunderstand me I am talking about the so-called experts here not those influenced by them. Sadly we seem to be heading into a period where something they wanted ( higher inflation) will slow the economy down. I wonder how the inflationistas will spin that?

 

 

 

 

 

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23 thoughts on “UK employment improves and so does underemployment

  1. Unemployment figures all fall down as soon as self employment is mentioned. Anecdotally, if there is such a word, there is also a big rise in BS self employment. These people are to all intents unemployed but don’t like the stigma. Add to that ZH workers counted as FT, the sanctioned, workfare and the given up looking and the jobs “miracle” evaporates into the ether being the chimera it is.

    I take it as a given that if you don’t measure unemployment properly then you can’t measure inflation either, especially as housing has never been properly accounted for. Many on the blogosphere seem to confuse deflation with what is actually coming, stagflation. We are but one major event away from Crash II.

    Stagflation may be the best we can hope for, sorry to be so gloomy.

    • I hope for an outright crash in house prices i want to see devastation with over leveraged fools evicted and forced to rent as they are quite happy to see people like me do even though i’m funding their mortgage via ZIRP/QE etc…

      Without this the economy will continue in its zombie fashion. If it’d been allowed to crash in 2008/9 or continued to deflate from 2013 the economy would be doing fine by now.

      Bring back capitalism.

      • Well said Arthur, I work with many such individuals who are happy to laugh in your face when you point out that you are in effect paying their mortgage. I’m afraid as long as Mark Carney is in residence at Threadneedle St, nothing will change,interest rates will remain deeply negative, in fact he is more than willing to cut rates further and employ QE again should house prices start to fall or should anything else threaten his bubble.

        It’s the seventies all over again, stagflation and plenty of it for years to come, short of WWIII( Trump seems to be working on it)there is nothing I can see will change this rotten system.

      • Low mortgages are fundamentally funded via savers being forced to accept ever decreasing interest rates well below inflation.

    • Wonder what happens to the Wage figures iof you strip all ALL government subsidies like Working Tax Credits? And I agree, Self Emplyment increases cannot be genuine, unless we see figures about actual earnings for the self emplyed I remain highly skeptical theya re largely runnign 16 hours a week “Nail Salons” turning zeor profit and getting by on the Tax Credit handouts.

    • stagflation ?

      honestly would we know?

      all the GDP , CPI , etc ,etc all fiddled…..

      maybe we are already there but we’re not allowed to know it.

      ( look over the past 10-20 year debt inflation – does any one doubt there is a real problem here?? )

      Since 1998/2000 Western economies have been on life support via QE and other financial measures .

      Shaun often points out the differences in what is as what is supposed to be in the markets

      Forbin

      • Forbin,
        Why not compare historical prices of everyday items that the govt cannot fiddle,eg the Mars Bar, or even the Big Mac,(NOT bread or milk, these are always kept down as the govt and supermarkets know people remember the price of these-KVI’s-known value items- in recent years, it has consistently gone up 10% p.a,roughly what I would consider consumer price inflation to be.Big Mac is currently £2.99, check the price over the year and see how it goes up. I’ll wager this time next year it will be £3.29.

        • Hi Kevin,

          This June I’ll do a comparison of the Forbin’s food basket again , maybe.
          the last one I did averaged about 20% over 5 years

          I can see why this can be difficult as items change size and ingredients. Also some items are no longer sold but basics , like sugar , milk and meats are easier to follow.

          As for fuel , it seems 2005 was the lowest point and we’ve been the only way is up since , what ever oil prices do. . Petrol btw still hasnt suck to the £6.00 gallon seen when oil peaked at $147.

          I’d point out that I suspect super market price promotions are tied to when the government are collecting their price data .

          skew the dammed figures ? what ? our HMG ?

          Forbin

        • The problem is that there is no longer a standard Mars bar or probably even Big Mac….shrinkflation rules o! Yes, the k is no longer included…..but the price is the same…

      • so in the future we’ll have robot workers watching robot footballers ?

        Mind you doesn’t seem that much difference as far as matches go these days……

        Humans need not apply ( and are no longer needed)

        once we have War with the robots , then we’ll not be need for that either

        ( War with the Robots – Harry Harrison)

        Forbin

        • It is mathematically impossible to prove software is fault free, Turing, Godel etc. There will always be a need for smart scientists and engineers.

          There is the question of how the rewards from productivity gains are shared and whether voters fall for a sea of lies, allowing politicians to avoid accountability.

  2. You are never paid what you are worth. You are only paid what you can negotiate. Bank directors and senior staff at the BoE are prime examples of this. The one course I have never seen offered at a school, college or university is one on negotiating. Save yourself £60,000 on a universtiy edcuation and instead read a couple of books on negotiating. You will be a lot richer for it. Won’t have the three years of partying though.

  3. One of the many reasons for low productivity in this country is the unwillingness of businesses to invest in plant/machinery/automation when the cost of labour is so cheap, this may run counter to the headline of this article in that it is an obstacle to “robotisation” or automation, but this is further exacerbated by the government interfering in the jobs market with benefits for the low paid to top up their wages,business then adjust down the rates of pay to take into account of this. The recent budget adjustments for self employed NI contributions highlighted further employer abuses of govt legislation, when appointing new employees as “self employed” when they are anything but, in order to avoid paying sick pay, redundancy etc and more importantly employers NI contributions

    Thus the tax payer is indirectly subsidising the profits of many companies,and in the process reducing his/her take home pay further.

    Yet another example of the govt interfering in the market place with self defeating policies, and in the process wasting taxpayers money.

    • huh?

      I think you’ll find that its businesses who are not interested .

      pfft!

      rule 1, we’re making money so no need to invest

      rule 2, we making a loss , so no money to invest

      I’ll also note that if you have a bright idea that just might make money the first thing the Bank sill ask is – ” do you have a house? ”

      because there’s not such thing as investment capital here in the UK

      ( money? please give us your house plus 2 small children as hostage …..)

      Forbin

    • successful exporters invest in product innovation and process quality improvements. These are the investments that contribute to German and Japanese trade surpluses.

      • The investment term is also the difference here in this country, Germany and especially Japan are strategically looking years if not decades ahead, this country?Forget it, a year?two maybe, then they want their money back.

        But who needs exporters?Why bother to set up a business,employ people and risk anything when you can just buy property?We have the Carney magic money machine -housing-underwritten by HM Government and the Bank of England to guarantee 7%p.a in perpetuity.

  4. Shaun,

    Are those OECD figures payroll taxes ? I was looking at the OECD taxes on goods and services, and they show UK at 10%, NZ over 12% with USA consumption tax very low. Japan and Switzerland rather low.

    • Hi Expat

      They try to get a type of net position for taxes on income via this route.

      “Taxing Wages 2017 measures the level of personal income tax and social security contributions in each OECD country by calculating the ‘tax wedge’ – the total taxes on labour income paid by employees and employers, minus family benefits received, as a percentage of the labour costs of the employer. The tax wedge is calculated for a range of different family types and at different income levels.”

      If we move to employer social security contributions or what us called NI in the UK there is quite a range from 0% for the Kiwis and Chile to 26.8% in France. Here is a link to the tables etc..

      http://www.oecd.org/tax/tax-policy/oecd-tax-rates-on-labour-income-continued-decreasing-slowly-in-2016.htm

  5. Great blog as always, Shaun.
    Regarding real wage, you write: “Of course, even if we use the figures for February alone then real wage growth was negative if we compare it to the Retail Price Index.” It would seem to me the best deflator would be the now discontinued RPIJ series, but it can still be constructed using information on the change in the formula effect from the CPI briefing note. This would argue for a 2.4% inflation rate and a 0.5% annual increase in total real wages for February 2017, with a 0.5% decrease for regular pay. For December 2016-February 2017 the real wage change for total pay would be 0.2% and for regular pay 0.0%. Since the RPIJ deflator is still downward-biased it is possible there was no increase in real wages measured by regular pay. This is similar to what one finds using the CPIH as deflator, as the ONS does now, but still gives lower real wage growth rates. It will be interesting to see what real wage estimates look like using the household inflation index as a deflator, assuming these estimates are published on a monthly basis.
    Regarding including self-employment estimates in the UK labour force data, be careful what you wish for. The self-employed are included In the Canadian labour force estimates, where their role seems to be to obscure, rather than enlighten. In March the unemployment rate went up by 0.1 percentage points, but rather than making that the main story, most of the mainstream media went with 19,400 jobs being created, although only a thousand of them were employee jobs and the others were all self-employed jobs. The media gave an upbeat spin on what was really quite a downbeat jobs report.

    • Hi Andrew and thank you

      I too hope that the Household Inflation Index or whatever new name they have given it is published monthly! It will improve matters.

      As to measuring self-employment it is quite a problem I agree. Obviously some self-employment is the equivalent of employment but as others have replied already some are not. We are not enormously wiser on the break -down here and from what you say in Canada either.

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