It is hard not to have a wry smile as we note that Tuesday is now the day that the official UK labour market data is released. This is because Members of Parliament apparently need 24 hours to digest it before Prime Ministers Questions on Wednesday lunchtime. Hopefully it is leading to an improvement in the standard of debate. Meanwhile the Bank of England was on the case yesterday and it started well for the absent-minded professor Ben Broadbent as he remembered to turn up at CNBC. So what did he tell us? From Reuters.
Broadbent also said the BoE had seen signs of pay pressure strengthening.
“We’ve certainly seen stronger figures, not just in the official data but in many of the pay surveys, than we’ve seen for many years,” he said.
“I, certainly the (Monetary Policy Committee)… always believed that the same old rules applied — that as the labor market tightened you would begin to see faster wage growth, and that’s indeed what we’ve seen.”
Whether that will continue depends on whether the economy continues to grow enough so that the labor market keeps tightening, Broadbent said.
Deputy-Governor Broadbent is for once telling us the truth or at least some of it. We have seen some signs of pay growth in nominal terms and he has clung to the “same old rules” like a drowning man clings to a piece of wood. But what he does not tell CNBC viewers if that it is certainly not the “same old scene” that Roxy Music sang about. The new scene has seen Bank of England guidance on an unemployment rate that should see wages rising drop from 7% to 4.25%. They have been like a centre forward who strides into the penalty area and shoots only for the ball to go out for a throw-in. Or to put it another way wages growth should now be above 5% as opposed to there being hopes of a rise above 3%. There is a world of difference here if we consider what the impact of some genuine real wage growth would have on people’s circumstances and the economy generally.
As to actual evidence the view of the Bank of England Agents for the third quarter was this.
Employment intentions remained positive in most sectors except for consumer services, which weakened slightly. Recruitment difficulties remained elevated. Average pay settlements were a little higher than a year ago, in a range of 2½%–3½%. Growth in total labour costs picked
up due to the increase in employers’ pension auto-enrolment contributions, the Apprenticeship Levy, and ad hoc payments to retain staff with key skills.
Firstly let me note that several of you pointed out ahead of time the likely implications of pension auto-enrolment on wage growth.
The impact of this on wage growth has been contentious in that the establishment view in both economics and officially is that immigration has not reduced wage growth. Yet the Financial Times last week more than hinted that the reverse may not be true.
Some companies are expecting it will become even more difficult to recruit once the UK leaves the EU because the government is proposing a new immigration regime that lets some high skilled workers into the UK but places curbs on untrained labour. After years of sluggish wage growth, low unemployment is now starting to hit companies’ profits: JD Wetherspoon, Royal Mail and Ryanair have recently complained about rising labour costs.
As many of the replies point out perhaps they need to increase wages which is awkward for those who argued that immigration has not depressed pay growth.
There was some better news.
Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 3.2% excluding bonuses, and by 3.0% including bonuses, compared with a year earlier.
As you can see total pay growth reached 3% which will help real wages although not as much as we are told.
Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.9% excluding bonuses, and by 0.8% including bonuses, compared with a year earlier.
That is because the official measure of inflation or CPIH uses Imputed Rents and is therefore inappropriate to use as a wage deflator. Why not use CPI well real wage growth then falls to more like 0.7% for regular pay and 0.5% for total pay. If we use the Retail Price Index or RPI then real wage growth pretty much disappears. So in fact whilst any real wage growth is welcome the reality is that it is depending on the redefinitions of or as it is officially put “improvements” in the measurement of inflation.
Was it productivity?
Perhaps not because we know GDP growth picked up to 0.6% on a quarterly basis but look at hours worked.
Between April to June 2018 and July to September 2018, total hours worked increased (by 10.7 million) to 1.04 billion. This reflected an increase of 23,000 in the number of people in employment and an increase in average weekly hours worked, particularly by those working full-time,
So an increase of a bit more than 1%. So in terms of a direct link no although it may have been driven previous changes. Thus the answer to those hoping to find an oasis of productivity gains is definitely maybe.
Output per hour – Office for National Statistics’ (ONS’) main measure of labour productivity – decreased by 0.4% in Quarter 3 (July to Sept) 2018. This follows a 0.5% increase in the previous quarter (Apr to June) 2018. In contrast, output per worker increased by 0.5%.
We got a little bit of a clue yesterday from the UK Deputy Statistician Jonathan Athow who blogged on employment.
The share of people working very short hours – fewer than six hours a week – is very low, around 1.5 per cent, or a little over 400,000 people out of the 32.4 million people in work. This is down from around 2 per cent in the early to mid-1990s. The next category – from 6 to 15 hours a week – has also shrunk as a share of employment over the same period of time.
So measuring that might give us a clue to wage pressure as it is a signal of reducing underemployment. However it cannot be the full picture as otherwise wage growth would be more like the 1990s and I wonder how much of a role the rise in self-employment has had in this?
The good news is that the UK has some wage growth but the not so good news is that it remains relatively weak. Also the last three months have gone 3.3%,3.1% and now 2.8% which is a trend in the opposite direction! The last number was influenced by the annual rate of pay growth in the financial sector falling to 1.2% in September. So fingers crossed as we note that there is still a long road ahead.
£493 per week in constant 2015 prices, up from £490 per week for a year earlier, but £29 lower than the pre-downturn peak of £522 per week for February 2008.
At the current rate of progress we will get back to the previous peak by inflation measurement “improvements” rather than wage growth.
Also let me remind you that the self-employed and those in smaller businesses are not counted in the wages data. So let us mull some of the other issues.
employed (has worked at least one hour in the last two weeks);
It is hard not to think of the Yes Prime Minster critique of labour market data as you read that. Also think of the issues involved in extrapolating this into the whole labour force.
As noted above, all of this information comes from our Labour Force Survey. Every three months, we ask approximately 90,000 randomly selected people for a few minutes of their time to respond to our Labour Force Survey interviewers face-to-face or over the phone.
I wonder how many do respond?