Is this something of a Goldilocks scenario in the UK labour market?!

Today brings us to the latest official wages and labour market data for the UK . If that feels wrong you are indeed correct and the rationale for switching from a Wednesday is both breathtaking and probably true. From City AM in February.

The ONS said today: “Publication of labour market statistics on the day of Prime Minister’s Questions – one of the most important and most widely covered parliamentary occasions – means there is a risk that these detailed statistics are not fully understood by Parliamentarians on both sides of the House before they can be debated. This reduces the public value of these statistics.

Of course recent events suggest that they still will not understand them!

If we move to wages then the mood music generally is that they are rising. This is an international theme as anecdotes from the US are accompanied by talk of rises in Japan. The particular problem with Japan is that seems to come each year with the flowering of the Cherry Blossoms and usually lasts about as long as the flowers. Switching back to the UK we were told this last week. From the Recruitment and Employment Confederation.

March data signalled a further sharp increase in permanent staff placements across the UK, with the pace of expansion edging up fractionally since February. In contrast, temp billings expanded at the weakest pace for over a year.

So we see what is in labour market terms signs of a mature phase of the expansion. Jobs growth cannot boom for ever so employers may well be switching from offering temporary to permanent work in response to fears that they may find it harder to get temporary workers. If we look back for some perspective we see that the rally in UK employment began at the end of 2011 and the around 29,300,000 of then has been replaced by around 32,300,000 now. Frankly it told us something was changing well before the output or GDP data with the caveat being the question around what does employment actually mean these days?

Moving to wages the REC told us this.

Pay pressures remain marked

 

Average starting salaries continued to increase sharply in March, despite the rate of inflation softening to a ten-month low. Pay for temporary/contract staff rose at the quickest pace since last September.

Let us hope so as we have a lot of ground to regain as the Office for National Statistics suggested last week. Some of you have been kind enough to suggest its production of income data minus the imputed numbers is a success for my efforts but either way it have given some food for thought.

Cash real household disposable income (RHDI) per head fell for the second successive year, both on a national accounts and cash basis. Cash RHDI per head fell, by 0.7% year on year, whereas national accounts RHDI per head fell 0.3% year on year.

This is an interesting result although I am not sure that they have the numbers under control as they rose by 5% in 2015 perhaps excluding the fantasy numbers is proving more problematic than they thought. They also give a great definition of fantasy or made-up numbers though!

 it is not expenditure (or income) directly observed by homeowners. As a result, the national accounts measure of RHDI can differ from the perceived experience of households.

Today’s data

Having noted earlier the way that the level of employment turned out to be a better signal than GDP back in 2011/12 lets us go straight to it.

There were 32.26 million people in work, 55,000 more than for September to November 2017 and 427,000 more than for a year earlier.

which leads to this.

The employment rate (the proportion of people aged from 16 to 64 years who were in work) was 75.4%, higher than for a year earlier (74.6%) and the highest since comparable records began in 1971.

So our labour market has continued in quantity terms to improve and for perspective here is the low on these figures.

The lowest employment rate for people was 65.6% in 1983, during the economic downturn of the early 1980s.

On this measure we are doing extraordinarily well and if we look into the detail we see that over the past year the gains have been mostly in full-time work (280,000) at least according to the ONS as its definition of this is a bit of a chocolate teapot. Also perhaps confirming points made by many of you in the comments section we are finally shifting back away from self-employment as it fell by 30,000 to 4.76 million as employment rose by 427,000.

Wage growth

This is both better and something of a curate’s egg.

Between December 2016 to February 2017 and December 2017 to February 2018, in nominal terms, both regular pay and total pay increased by 2.8%.

The better bit comes from the fact that on this measure it has improved over the past few months and according to our official statisticians it has done this.

regular pay for employees in Great Britain increased by 0.2% while total pay for employees in Great Britain increased by 0.1%.

Of course that relies on the really rather woeful ( we are back to imputed rent) headline inflation measure they use as we are still slightly below on their previous measure and more than 1% below using the measure before that ( RPI). Is there a trend there?

Where it is a curate’s egg is two-fold. Firstly given the employment situation it should be much higher if the past is any guide and will have many Ivory Towers gasping for air. Secondly the last three months from December to February have gone 3.1% then 2.8% and now 2.3%. Best of luck finding an upwards trend in that! Your only hope is that the numbers are erratic.

Unemployment

This looked set to rise and indeed we had seen some flickers and hints of that but it was replaced this time around by this.

For December 2017 to February 2018, there were: 1.42 million unemployed people, 16,000 fewer than for September to November 2017, 136,000 fewer than for a year earlier and the lowest since June to August 2005.

For some reason the ranks of unemployed men are shrinking much faster than that of women for which I have no good explanation.

Inactivity

This is a subject often ignored but we do seem to have a difference with the US and its participation rate issue.

the economic inactivity rate for people was 21.2%, lower than for a year earlier (21.6%) and the joint lowest since comparable records began in 1971.

Comment

The UK performance on the quantity measures of the labour market would be described as “outstanding” by the now sadly departed Drill Sargeant in the film Full Metal Jacket. But as we have observed so many times the relationship between it and wages growth has broken down. There has been some new research on this subject from David Bell and David ( Danny) Blanchflower.

We also provide evidence that the UK Phillips Curve has flattened and conclude that the UK NAIRU has shifted down. The underemployment rate likely would need to fall below 3%, compared to its current rate of 4.9% before wage growth is likely to reach pre-recession levels. The UK is a long way from full-employment.

I have a lot of sympathy with those who argue that under employment is an issue although it is sad to see the Phillips Curve being resurrected from its grave yet again. Also whilst it is about the UK it is hard not to think of Japan and its lack of wage growth with unemployment under the threshold. Of course the mention of an unemployment threshold will send a chill down the spine of the Bank of England economics department as we wonder if 3% will be the new 7%?

The reality is that for all the economic good news the state of play is this and remember this involves what we might call a favourable definition of inflation plus puts self-employed wages under the floorboards.

average total pay (including bonuses) for employees in Great Britain was £486 per week before tax and other deductions from pay, £36 lower than the pre-downturn peak of £522 per week recorded for February 2008

 

 

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8 thoughts on “Is this something of a Goldilocks scenario in the UK labour market?!

  1. Is there a Godwin’s equivalent of invoking Orwell? I hope not, this from the BBC http://www.bbc.co.uk/news/business-43794707 “Year Long Wage Squeeze Comes To End”. I’m sure it will come as good news to many that the said wage squeeze was only a year long! Why wages have risen in real terms since February last year if you use… wait for it… CPIH!! Needless to say there is no byline, who’d put their name on that rubbish?

    As an aside on male unemployment falling faster than women it is thought that men tended to dodge unemployment by false self employment so take jobs as they come. I’d also just like to make my usual observation on the employment figures, they are boom figures so where is the boom?

    • Hi bill40

      We are past the level that used to be regarded as “full employment” as that was considered to be an unemployment rate of ~4.5%. Of course that was back in the days before underemployment ( 8% as of the end of 2017) became such an tissue.So as you imply it is complex…

      As to the BBC I am not sure where their economics department thinks it is going? I used to take an interest but these days I rarely even bother to check it. The innovation of having a headline economics editor was a good idea, sadly the personnel choices have been less so.

  2. Shaun, your last statistic was an eye opener. Under 500 pw when 10 years ago it was over 500. That means we in tbe UK are poverty stricken. I watched one of those “escape the castle” lifestyle shows on TV a couple of days ago. Dick the engineer who had bought a French Chateau with 45 rooms for only £280k (bargain) was having trouble renovating it… he was shocked at the cost of labour and materials in middle France.

    Mind you the French state did help, sent him a free gas supply because of his rural location, behind a moat.

    I guess our impoverishment along with rampant property gains are painting some strange juxtapositions… but only for some.

    • Hi Paul

      I guess bargain depends on the renovation required so will take your view on it. As to house prices they have a long way to go to catch up with us but maybe negative interest-rates are having an impact. From Insee

      “In Q4 2017, the prices of second-hand dwellings in Îlede-France
      continued to rise: +1.1% compared to
      Q3 2017, after +1.4%.
      Year-on-year, the rise of prices reached +5.1%, after
      +4.6% in Q3 2017 and +3.9% in Q2 2017. This
      acceleration continued to come from a more accentuate
      rise in the prices of flats (+5.9% over the year), especially
      for the flats in Paris which increased by 8.6% in one year. “

  3. Hello Shaun,

    So with wages practically stagnant and house prices poised to fall……. .

    !, BoE will have the excuse not to raise interest rates as I point out they target wage inflation , not CPI or RPI

    2, The Banks will need more QE to make up for losses on the property market as they are still effectively 10 years on still bust

    I couldn’t find the median wage figures – someone can help out here?

    And with inflation busting increases working their way through the system , shrinkflation and so on, with the taxes rising too ( sugar tax)…. how does a service /consumer lead economy work?

    I’m sure I can hear plates crashing down…….

    Forbin

    PS: front seat at this show , with popcorn on hand …….

    • Hi Forbin

      We only get median wages data from the annual ASHE survey.

      “In April 2017, median gross weekly earnings for full-time employees in the UK were £550, up 2.2% from £539 in 2016.

      The 2.2% growth seen this year is the joint highest since the economic downturn in 2008 (matching that seen in 2013 and 2016).”

      As to the Bank of England if they raise interest-rates then it will be based on the sort of Phillips Curve analysis which has caused it so much embarrassment since the unemployment rate fell below 7%. I would like them higher but the boat sailed without them and now if the raise they run the risk of cutting again in short order.

  4. My simple equation:
    (Tax credits + Housing benefits + Unlimited supply of low value workers)
    =
    (More crap jobs + crap pay + crap productivity + overcrowding – little by way of extra taxes)

    The gangmaster economy of today encouraged by low value employers and buy-to-let landlords.

    • Hi hotairmail

      In a way you are like Forbin looking for a median number for wage rises and more particularly median pay which would tell a tale when compared to average pay. The irony is that pre credit crunch we wanted to be more like the Germans in employment terms which is in many respects what we have done.

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