Today brings the UK labour market into focus as we hope for more good news. However we have seen over the past day or so some reminders that the credit crunch era left long lasting scars for some. In isolation the UK has recovered well in terms of employment and getting people back to work but has done much less well overall in terms of what they are paid for it. In particular the Resolution Foundation has taken a look at one rather unfortunate group.
This report looks at the specific fortunes of the “crisis cohort” those who left education between 2008 and 2011. By analysing outcomes for those unfortunate enough to enter the labour market in the aftermath of the 2008-09 recession, this paper estimates how severe an impact
the downturn had on people who left education in its midst, and how long-lasting these effects were.
These individuals were of course guilty of nothing and were only involved via an accident of the timing of their birth. The Resolution Foundation discovered these effects.
We find that people starting their careers in the midst of a downturn experience a reduction in real hourly pay of around 6 per cent one year after leaving education, and that compared to people who left education in better economic conditions their wages do not recover for up to 6 years. For those with lower levels of education, the chance of being in work falls by over 20 per cent, while for graduates the chance of being in a low paying occupation rises.
The find something which resonates with past Bank of England research on this subject.
The chance of a graduate working in a lowpaid occupation rose by 30 per cent, and remained elevated a full seven
years later. Indeed, we find that people ‘trading down’ in terms of the occupations they enter after leaving education, coupled with pay restraint in mid-paid roles, are main drivers of poor pay outcomes for those entering
the labour market in a recession.
The issue I have with this is that we are looking at a period when being a graduate was not what it had been in the past due to the expansion of numbers in the Blair era. So that may well also have been in play but not fully considered. Whatever the cause there was a strong effect on wages.
This helps explain why the impact on pay was more enduring in the recent downturn. People’s hourly wages took 50 per cent longer to recover (to the rates of pay enjoyed by those leaving education outside the downturn).
Thus not only did wages fall they took longer to recover to levels seen by those lucky enough not to start work and graduate as the credit crunch hit. A clear issue for thos affected.
However we did get one thing right in the sense that pre credit crunch we wanted to be what was considered to be more Germanic. In this instance that meant more flexible wages ( as in potentially down) in return for a better employment trajectory.
On the other hand, youth unemployment did not rise as high as in the early 1990s, and came down much faster.
Many now seem to have forgotten that as it has turned out to be a success but at a price in terms of wages especially for those unlucky enough to be born at the wrong time. Although as this from BBC economics correspondent Andy Verity illustrates some are keener on lower unemployment than others.
The unemployment rate is now down to 3.8%. But is lower unemployment always a good thing? Not necessarily – if eg you’re a business and you can’t get the staff.
The drumbeat of the UK data series for around the last seven years continues to beat out its tune.
Estimates for January to March 2019 show 32.70 million people aged 16 years and over in employment, 354,000 more than for a year earlier. This annual increase of 354,000 was due entirely to more people working full-time (up 372,000 on the year to reach 24.11 million). Part-time working showed a small fall of 18,000 on the year to reach 8.59 million……..The UK employment rate was estimated at 76.1%, higher than for a year earlier (75.6%) and the joint- highest figure on record.
The bass line was in tune as well.
For January to March 2019, an estimated 1.30 million people were unemployed, 119,000 fewer than for a year earlier and 914,000 fewer than for five years earlier…….
the estimated unemployment rate: for everyone was 3.8%; it has not been lower since October to December 1974 (for men was 3.9%; it has not been lower since March to May 1975, for women was 3.7%, the lowest since comparable records began in 1971)
As you can see the unemployment performance is a case of lets hear it for the girls.
Also as I regularly get asked here is the other category.
The UK economic inactivity rate was estimated at 20.8%, lower than for a year earlier (21.1%) and close to a record low.
Here there was a more nuanced version of better news.
Including bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.2%, before adjusting for inflation, and by 1.3%, after adjusting for inflation, compared with a year earlier.
If we put to one side for a moment the attempt to sugar coat the real wages numbers, there is a fading of nominal wage growth here. We should welcome the fact that the annual rate of growth is still above 3% but there is an issue as it has fallen back from 3.5%. Why? Well weekly wages peaked at £530 in January and fell to £529 in February and £528 in March. Various areas contributed to this as the annual rate of pay growth in finance fell from 5% to 1.8% over the same period and growth in the wholesaling,retail and hotel sector actually went negative ( -0.3%). This was due to weak and in some cases negative bonus payments ( I am not sure how that works…) being recorded so it is a case of what that space.
I did say I would return to real wage growth and let me present it in chart form to illustrate the issue.
Those who have had a hard time in the credit crunch provide yet another reason to make the case for an RPI style measure of inflation I think. It also shows that choosing your inflation measure is a genuinely big deal and something that establishment’s love to manipulate.
One of the ironies of the credit crunch era is that the economics establishment regularly gets worked up about things it wanted. Of course some of those reporting the situation are too young to remember that but not all. We see that we got the better employment situation we wanted but that especially for those who joined the job market at what turned out to be the wrong time real wages shifted onto a lower path from which they have yet to recover. Sadly the main response from government has been to try to change the numbers via the use of the fantasies involved in Imputed Rents which are never paid, rather than dealing with reality. Also the way that the self-employed are ignored in the wages data is becoming a bigger and bigger issue.
4.93 million self-employed people (15.1% of all people in employment), 180,000 more than a year earlier.
As to the current situation it may no longer be quite so Goldilocks as whilst employment growth continues we face the possibility that wage growth is slowing again. Perhaps in spite of its many fault as a measure it is related to this.
In contrast, output per worker in Quarter 1 2019 increased by 0.7% compared with the same quarter in the previous year.
If you want the full picture it is the difference between the two numbers here.
It indicates that in Quarter 1 2019, all three economic indicators were above their pre-downturn levels, with GDP being 12.7% higher while both hours and employment were equally 10.2% higher.
Putting all this another way it is yet another punch hammered home on output gap style theories which must now be in boxing terms on the canvas again. What happened to the three knockdowns and you are out rule?