The UK gets welcome news from real wages and employment

This morning has brought the latest labour market release from the UK and let us start with what has been the main topic in recent times which is wage growth.

Annual growth in regular earnings (excluding bonuses) was 7.3% in August to October 2023, this growth continues to remain strong but is not as high as in recent periods; annual growth in employees’ average total earnings (including bonuses) was 7.2% in August to October 2023.

I have never really quite understood why they emphasise regular over total pay but as you can see it is a minor factor at the moment. But we see on a basic level that there is some real wage growth if we use the CPI inflation measure that the Bank of England targets.

Using CPI real earnings, in August to October 2023, total pay rose by 1.2% on the year. Growth was last higher in August to October 2021 when it was 1.5%. Regular pay rose by 1.2% on the year; growth was last higher in July to September 2021 when it was 2.2%.

This is very welcome after a period where real wages have seen substantial falls and I hope it continues.  Actually the news on pay was reinforced I think by the October number of 6% annual wage growth because the slowing in wages growth should be noted by the Bank of England and also it remained above CPI inflation for that month which was 4.7%. A situation where wages growth fades with inflation but remains above it would be a Goldilocks style one.

For the overall position we see that UK real wages peaked at £527 in May 2021 and in October were £506 so we get some idea of the impact of the cost of living crisis. Unfortunately it is only a rough guide because as regular readers will know I reported the wages numbers back then to the Office for Statistics Regulation. After all the idea that an economic collapse caused wages to surge was frankly nonsense. Actually they do have a type of confession to that in the release but I doubt many will see the full implication of it.

As a result, AWE is not a measure of rates of pay and can be affected by changes in the composition of an enterprise’s workforce.

That is somewhat damning as they are stating it is not what it gets used for! Anyway let me look further back to illustrate my point which shows that real wages have been in quite a depression in the UK. If we look back to before the credit crunch there were some odd prints but also some around £521 per week whereas now in October it was £506. Or if you prefer in the 16 years or so since real wages have fallen by 3%. The number will be higher if you use the Retail Prices Index or RPI.

Breakdowns

There was something in the breakdown which should calm the Bank of England.

 If we compare the latest three months with the three months that preceded them, and then annualise this growth rate, nominal regular average weekly earnings grew by 4.2%.

As you can see wages growth has slowed quite a bit. The actual position is a bit more complex than that because some of the past rises were “one-offs” especially in the public-sector  So we have a situation where weekly wages were £711 in June but £645 now.

One area which caught my eye was accommodation and food services which has pay of £305 per week. Isn’t that below the minimum wage?

We can have a peek at some hints for November from the tax data.

Early estimates for November 2023 indicate that median monthly pay increased by 5.3% compared with November 2022, and increased by 24.1% when compared with February 2020.

That came with an interesting breakdown in the sense that finance was not the fastest growing sector.

Annual growth in median pay in November 2023 was highest in the wholesale and retail sector, with an increase of 7.4%, and lowest in the education sector, with an increase of 1.3%.

Employment

There was positive news here too.

The estimated number of workforce jobs in the UK in September 2023 was a record 36.8 million, an increase of 210,000 from June 2023. The total number of jobs includes both employee jobs and self-employment jobs. The estimated number of employee jobs has been on a largely upwards trend since September 2020, resulting in a record high of 32.5 million in September 2023.

You may note that we only get a follow-up sentence on employee jobs presumably hoping we will not be aware of the previous falls in self-employment. The latter had peaked at 5.03 million before the Covid pandemic whereas as of the last formal estimate it was 4.24 million. The picture was muddied by legal changes which shifted things in favour of payrolled employment but even so there were falls so it is welcome we are now seeing a rise. Unfortunately we do not get told by how much they have risen. But the overall picture is of jobs growth as opposed to the previous quarter’s report of a decline.

One interesting way of looking at things is to compare with the US where non-farm payrolls were considered to be strong on Friday.

And if UK labour market stats were presented as in US (where UK Workforce Employee Jobs are roughly equivalent to Non-Farm payrolls). Then the jobs story would be roughly the same in both countries……And even if US & UK are compared on the basis of household surveys (CPS in US, LFS in UK) the picture is not that different.( @billwells_1)

That provides quite a different theme to the situation. Care is needed as what is usually the headline figure gives a very different answer.

This continuing WFJ growth contrasts with the mediocre LFS employment estimate of ~200k in latest year.

That is the same Labour Force Survey that is in such disarray right now. We can add to that if Bill Wells is right about this.

Since the LFS was reweighted in 2021 the gap in growth has widened substantially. Up from around ~1.2m to ~2.4m. So, whereas Workforce Jobs are now over 1m higher than pre-crisis peak LFS employment is around the same level. A very different picture. Perhaps WFJ more accurate?

The Experimental Series

Because of the falling response rate to the official survey the UK is producing some experimental numbers.

These alternative estimates for August to October 2023 show that:

• the UK employment rate (for those aged 16 to 64 years) was largely unchanged on the quarter at 75.7%
• the UK unemployment rate (for those aged 16 years and over) was largely unchanged on the quarter at 4.2%
• the UK economic inactivity rate (for those aged 16 to 64 years) was largely unchanged on the quarter at 20.9%

I wonder if “largely unchanged on the quarter” means they don’t really know?!

Comment

If we look at the data this is welcome news for the UK economy as we have some real wage growth and employment is rising too. That provides two major streams of thought of which the first is that such numbers remind us again what an awful job the Bank of England and the Office for Budget Responsibility made of forecasting the UK economy. Remember we were supposed to be in a deep recession ( GDP 2% lower) with unemployment rising and perhaps surging.

Next there is the underlying issue of how reliable are official statistics? I have already noted the clear differences in terms of employment between the two official surveys in the UK which mimics in terms of theme the situation in the United States. Also the average earnings figures need a review I think. The previous unemployment series has been binned. Just at the time in our lives when we can measure pretty much anything via our mobile phones and the like our official statisticians seem to be unable to measure much at all.