The UK underemployment rate rose as high as 18%

At a time of great uncertainty and not a little worry for many we should be able to turn to official statistics for at least a benchmark. Sadly the Covid-19 pandemic has found them to be wanting in many respects. Let me illustrate this with an example from the BBC.

The UK unemployment rate has risen to its highest level for two years, official figures show.

The unemployment rate grew to 4.1% in the three months to July, compared with 3.9% previously.

There are all sorts of problems with this right now which essentially come from the definition.

Unemployment measures people without a job who have been actively seeking work within the last four weeks and are available to start work within the next two weeks.

During this period many will not bother to look for work as for example some think they still have a job.

Last month, we reported on a group of employees who, because of the impact of the coronavirus (COVID-19) pandemic, have reported that they are temporarily away from work and not getting paid. Similarly, there is a group of self-employed people who are temporarily away from work but not eligible for the Self-Employment Income Support Scheme (SEISS). Although these people consider themselves to have a job and therefore are consistent with the ILO definition of employment, their lack of income means that they may soon need to look for work unless they are able to return to their job.

A sort of job illusion for some with the problem being is how many? I would like all of them to return to their jobs but also know they will not. The concept though can be widened if we add in the furlough scheme which was designed to save jobs but as a by product has driven a bus through the employment and unemployment data.

The number of people who are estimated to be temporarily away from work (including furloughed workers) has fallen, but it was still more than 5 million in July 2020, with over 2.5 million of these being away for three months or more. There were also around 250,000 people away from work because of the pandemic and receiving no pay in July 2020.

So we are unsure about 5 million workers which dwarfs this.

Estimates for May to July 2020 show an estimated 1.40 million people were unemployed, 104,000 more than a year earlier and 62,000 more than the previous quarter.

So we see that the number is simply way too low which means that all of the estimates below are at best misleading and in the case of the employment rate outright laughable.

the estimated employment rate for all people was 76.5%; this is 0.4 percentage points up on the year and 0.1 percentage points up on the quarter…….the estimated UK unemployment rate for all people was 4.1%; this is 0.3 percentage points higher than a year earlier and 0.2 percentage points higher than the previous quarter…….the estimated economic inactivity rate for all people was 20.2%, a joint record low; this is down by 0.6 percentage points on the year and down by 0.3 percentage points on the quarter

The economic inactivity measure is perhaps the worst because the worst level of inactivity in my lifetime is being recorded as a record low. This embarrasses the Office for National Statistics as we are in “tractor production is rising” territory.

What can we use?

A measure which is working pretty well seems to be this.

Between February to April 2020 and May to July 2020, total actual weekly hours worked in the UK decreased by 93.9 million to 866.0 million hours. Average actual weekly hours fell by 2.8 hours on the quarter to 26.3 hours.

This shows a much larger change than that suggested by the official unemployment measure. We can in fact learn more by looking further back.

Over the year, total actual weekly hours worked in the UK decreased by 183.8 million to 866.0 million hours in the three months to July 2020. Over the same period, average actual weekly hours fell by 5.8 hours to 26.3 hours.

On this measure we see that if we put this into the employment numbers we would see a fall approaching 6 million. So in effect the underemployment rate was in fact heading for 18%. If we simply assume that half of it was unemployment we have an unemployment rate of 11% which in economic terms I am sure we did. Now the economy is more open perhaps it is 7-8%.

The 8% unemployment rate does get some support from this.

Between July 2020 and August 2020, the Claimant Count increased by 73,700 (2.8%) to 2.7 million (Figure 10). Since March 2020, the Claimant Count has increased by 120.8% or 1.5 million.

It is hard not to have a wry smile as I type that because back in the mid 1980s Jim Hacker in Yes Minister told us nobody believes the unemployment figures and those are the one he was referring to. There are other references to that sort of thing as well.

Hacker: The school leaving age was raised to 16 so that they could learn more, and they’re learning less!

Sir Humphrey: We didn’t raise it to enable them to learn more! We raised it to keep teenagers off the job market and hold down the unemployment figures.

Pay

The opening salvo is less than reassuring.

The rate of decline in employee pay growth slowed in July 2020 following strong falls in the previous three months;

We find that the pattern is what we would be expecting.

Growth in average total pay (including bonuses) among employees was negative 1.0% in May to July, with annual growth in bonus payments at negative 21.4%; however, regular pay (excluding bonuses) was positive at 0.2%.

It has been the public sector which has stopped the numbers being even worse.

Between May to July 2019 and May to July 2020, average pay growth varied by industry sector . The public sector saw the highest estimated growth, at 4.5% for regular pay. Negative growth was seen in the construction sector, estimated at negative 7.5%, the wholesaling, retailing, hotels and restaurants sector, estimated at negative 3.2%, and the manufacturing sector, estimated at negative 1.7%.

However there was an improvement for many in July.

 For the construction, manufacturing, and the wholesaling, retailing, hotels and restaurants sectors, the July 2020 estimate of annual growth shows sign of improvement when compared with May to July 2020.

If we look at the construction sector then weekly wages rose from £573 in June to £620 in July so there was quite a pick-up of which £10 was bonuses.

Switching to an estimate of real pay we are told this.

In real terms, total pay growth for May to July was negative 1.8% (that is, nominal total pay grew more slowly than inflation); regular pay growth was negative 0.7%.

Although those numbers rely on you believing the inflation numbers which I do not.

Comment

We have found that the official ILO ( International Labor Organisation) methodology to have failed us in this pandemic. Even worse no effort has been made to fix something we have been noting ( in this instance looking at Italy) since the third of June.

and unemployment sharply fell

If you actually believe unemployment fell in Italy in April I not only have a bridge to sell you I may as well sell the river as well.

Looking at the data suggests an underemployment rate of the order of 20% in the UK giving us an actual unemployment rate perhaps double the recorded figure.

If we switch to pay and wages we need to remind ourselves of those who are not counted. For example the self-employed and companies with less than ten employees. Such omissions did not bother the Dr.Martin Weale review back in the day but perhaps one of the ONS Fellows could help like er Dr.Martin Weale. We are back to reliving Yes Minister again.

Meanwhile according to Financial News some are resorting to desperate measures to get GDP rising again.

‘It could get really messy’: Finance workers’ cocaine use spikes in lockdown

UK Real Wages have not regained their previous peak

As we switch out focus to the UK labour market we see two contrasting forces being applied to it. The first comes from the better news being reported for the UK economy recently.

Financial wellbeing expectations hit survey-record high in
February ( IHS Markit )

That came only yesterday and according to it the outlook is brightening.

Looking ahead, UK households signalled positive expectations towards their financial health. The Future Household Finance Index – which measures expected change in financial health over the next 12 months – rose to 52.7 in February, from 49.6 in January. The level of optimism was at its highest since the data were first collected in February 2009, exceeding the previous
peak seen in January 2015.

This led according to the survey to a better labour market situation.

UK households recorded a lessened degree of pessimism
towards their job security during February, with the respective index rising (but remaining below 50.0) to a seven-month high. Meanwhile, the rate of growth in both workplace activity and income from employment accelerated from January.

This survey is a curious beast because the headline index which went from 44.6 to 47.6 in this report has never been in positive territory. Whilst in some ways that does cover out experience ( real wages for example) it does not cover the employment situation which has been pretty good.

This backed up the survey of the wider UK economy conducted by IHS Markit earlier this month.

At 53.3 in January, up from 49.3 in December, the seasonally adjusted IHS Markit/CIPS UK Composite Output Index posted above the neutral 50.0 mark for the first time since last August. The latest reading signalled a faster pace of growth than the earlier ‘flash’ estimate (52.4 in January) and was the highest for 16 months.

This too came with positive news for the labour market.

This uplift in success also created some business pressures
as the rush to increase staffing levels resulted in demands
for higher salaries.

Apple and HSBC

Last night, however, brought a reminder that on a world wide scale there is an ongoing economic impact from the Corona Virus.

Apple Inc become the latest company to flag lower revenue as a result of the epidemic, saying it would not meet its revenue guidance for the March quarter because of slower iPhone production and weaker demand in China. ( Reuters)

The main Apple market is not yet open due to yesterday being Presidents Day but more minor markets have suggested it will open more than 4% lower. I note that Reuters is also reporting this for the Chinese economy.

Analysts at Nomura again downgraded their China first-quarter economic growth forecast, to 3%, half the pace in the fourth quarter, and said there was a risk it could be even weaker.

This morning we have seen another consequence of the era of treating banks as The Precious.

HSBC posted plummeting profits for 2019 today as it outlined plans to get rid of $100bn (£77bn) of assets and dramatically downsize its investment banking arm in a restructure that will cost 35,000 jobs over the next three years. ( City-AM )

We know that the situation is really poor because the chief executive has deployed the word “resilient” which we have learnt means anything but.

Today’s Data

Employment

The long sequence of good news in this area continues.

The UK employment rate was estimated at a record high of 76.5%, 0.6 percentage points higher than a year earlier and 0.4 percentage points up on the previous quarter.

If we look further we see that such numbers are based on this.

There was a 180,000 increase in employment on the quarter. This was, again, mainly driven by quarterly increases for full-time workers (up 203,000 – the largest increase since March to May 2014), and for women (up 150,000 – the largest increase since February to April 2014). The quarterly increase for women working full-time (also up 150,000) was the largest since November 2012 to January 2013.

Actually this continues to be a remarkable performance and is a clear gain in the credit crunch era. However we do need context because there is for example an element of subjectivity in the definition of full-time work. Those completing the survey are guided towards 16 hours per week which is a bit low in itself but they can also ignore that. Also the rise in female employment is no doubt influenced by the rise in the retirement age for them.

The overall position is that on this measure things turned for the UK economy in 2012 a year earlier that GDP picked up. Regular readers will recall that back then we were worried about it being part-time but that has changed. Overall though there has been a pick-up in self-employment with ebbs and flows which is currently flowing.

Whilst there is an implicit rather than explicit link to unemployment ( as there is also the inactivity category) the good employment news has driven this.

the estimated UK unemployment rate for all people was 3.8%; this is 0.2 percentage points lower than a year earlier and 0.1 percentage points lower than the previous quarter…..For October to December 2019, an estimated 1.29 million people were unemployed. This is 73,000 fewer than a year earlier and 580,000 fewer than five years earlier.

Wages

Here the news has been less good. Let me explain using today’s release.

Estimated annual growth in average weekly earnings for employees in Great Britain slowed to 2.9% from 3.2% last month for total pay (including bonuses), and to 3.2% from 3.4% for regular pay (excluding bonuses).

This gives us two contexts. We have been in a better phase for wages growth but it has been slowing recently and that has continued. Things get more complex as we look at real wages as there are serious problems with the official representation of them.

In real terms (after adjusting for inflation), annual growth in total pay is estimated to be 1.4%, and annual growth in regular pay is estimated to be 1.8%.

The problem is that a simply woeful inflation measure is being used, via the use of fantasy imputed rents in the official CPIH inflation measure. This ensures that housing inflation is under-recorded and thus real wages are over recorded. A much better context is provided by this from Rupert Seggins.

UK real regular pay is now above its pre-crisis peak! If you like the CPIH measure of consumer prices. For CPI enthusiasts, it’s -1.8% below. For the RPI crew, it’s -7% below, for the RPIX hardcore, it’s -10.4%. If the household deflator’s your thing, then it happened in 2016 Q1.

Can anybody think why Her Majesty’s Treasury is trying to replace house prices in the RPI with Imputed Rents?! Actually trying to measure housing inflation stops the establishment claiming house prices are a Wealth Effect rather than the more accurate gains for existing owners but inflation for present and future buyers. Returning to real wages as you can see it makes a very large difference.

Having established that I have been disappointed to see so many news sources copy and paste this part of the release.

In real terms, regular pay is now at its highest level since the series began in 2000, whereas total pay is still 3.7% below its peak in February 2008.

As The Zombies pointed out.

And if she should tell you “come closer”
And if she tempts you with her charms
Tell her no no no no no-no-no-no
No no no no no-no-no-no
No no no no no

If we look into the monthly data we see that the UK chemicals sector is doing well and wage growth has picked up to 8.9%. Care is needed with such detail but it has been around 7% for over 6 months. However other areas of manufacturing are more troubled with the clothing and textiles sector seeing no increase at all. Whilst I am all for higher wages I have to confess that fact that the real estate sector is seeing consistent rises above 6% has a worrying kicker.

Comment

We find ourselves in broadly familiar territory where the quantity news for the UK economy is again very good but the quality news is not as good. At least these days the real wages position is improving a little. But to claim we are back to the previous peak is frankly a case of people embarrassing themselves.

The numbers themselves always need a splash of salt. For example I have pointed out already the growth of the self-employed, so their omission from the wages data is increasingly significant. Also whilst we are employing more people this time around hours worked was not as strong.

Between October to December 2018 and October to December 2019, total actual weekly hours worked in the UK increased by 0.8% (to 1.05 billion hours), while average actual weekly hours decreased by 0.2% (to 31.9 hours).

I look at such numbers because out official statisticians have yet to cover the concept of underemployment adequately. There is an irony here in that productivity will be boosted by a shorter working week. Maybe even by this.

In October to December 2019, it was estimated that there were a record 974,000 people in employment on a “zero-hour contract” in their main job, representing a record 3.0% of all people in employment. This was 130,000 more than for the same period a year earlier.

UK Real Wages took quite a dip in April

As we looked at the inflation data yesterday it was hard not to think of the implications for real or inflation adjusted wages from the further rise in inflation. There were quite a few such stories in the media about a fall in real wages although they were a little ahead of events because the inflation data was for May and even today we will only get wages data up to April. However there is an issue here that has been building in the credit crunch era where real wages fell heavily as the Bank of England looked the other way as inflation went above 5% in the autumn of 2011. Sadly they relied in their Ivory Tower models which told them that wages would rise in response. Not only did that not happen but the recovery since has been weak and was in fact driven much more by low inflation than wage growth. This is different to past recessions as this from the Resolution Foundation shows.

As you can see the pattern has been very different from past recessions. Real pay rebounded very strongly after 1979 and did well after 1990 but on the same timescale in remains in negative territory this time around. A lot of care is required with long term data like this but this is a performance that looks the worst for some time.

The Napoleonic war period seems especially grim for real wages. If I recall correctly we were imposing a blockade on much of Europe which seems to have our economy hard as well.

Today’s data

We see that wage growth has faded a bit in the latest numbers.

Between February to April 2016 and February to April 2017, in nominal terms, regular pay increased by 1.7%, slightly lower than the growth rate between January to March 2016 and January to March 2017 (1.8%)……..Between February to April 2016 and February to April 2017, in nominal terms, total pay increased by 2.1%, lower than the growth rate between January to March 2016 and January to March 2017 (2.3%). The annual growth rate for total pay, in nominal terms, has not been lower than 2.1% since October to December 2015.

This is of course happening at the same time that inflation is rising and leads to this situation.

The rate of wage growth slowed in the 3 months to April 2017; adjusted for inflation, annual growth in total average weekly earnings turned negative for the first time since 2014.

That is rather ominous when we consider the first chart above as it means that we are getting further away from regaining where we were in 2008 rather than nearer so let us look deeper. The emphasis is mine.

Average weekly earnings, including bonuses, grew by 2.1% in the same period and are the weakest since the December to February 2016 period. Taking into account recent increases in inflation, real average weekly earnings decreased by 0.4% including bonuses and by 0.6% excluding bonuses in the 3 months to April 2017 compared with the same period a year earlier. This is the first annual decline in total real average weekly earnings since 2014.

Of course they are using the new lower headline measure of inflation called CPIH which uses Imputed Rents to estimate owner-occupied housing costs. So the goal posts have been moved a little and this happens so often these days that we should be grateful that so many goal posts now come with wheels.

Where does this leave us overall?

The situation is as follows according to our official statisticians. They are using constant 2015 prices so they are real numbers.

average total pay (including bonuses) for employees in Great Britain was £487 per week before tax and other deductions from pay, £35 lower than the pre-downturn peak of £522 per week recorded for February 2008.

Number Crunching

We can go deeper because there are numbers for the month of April on its own. In that month total pay only rose at an annual rate of 1.2% because whilst regular pay rose by 1.8% bonuses fell by 5.8%. Care is needed as if we look back April has been an erratic month for bonuses but we see that real wages were falling at an annual rate of 1.5% if we use CPI inflation. 1.4% if we use CPIH and 2.3% if we use RPI. Even if we ignore the bonus numbers we see -0.9% for CPI, -0.8% for CPIH and -1.5% for RPI.

The sectors which seem to have impacted in April are the finance and construction ones which both saw total pay fall at an annual rate of 0.5%.

Is the UK labour market tight

Conventional analysis based on such theories as the Phillips Curve will be telling us that the UK labour market is “tight”. An example of this is below from Andy Verity of the BBC.

Unemployment: a 42-year low (1.53m, 4.6%); work force: another record high (31.95m people). But tight labour market isn’t pushing up pay.

If we put some more meat on those bones there are things heading in that direction as this shows below.

The number of people in work increased by 109,000 in the 3 months to April 2017 compared with the previous 3 months, to 31.95 million, with an increase in full-time employment (162,000) partly offset by a fall in part-time employment (53,000) . The employment rate reached a joint record high of 74.8%.

This looks good and indeed is but questions remain. For example having checked I know that there is not a clear definition of full-time work it is something that responders to the survey decide for themselves. Added to this is the issue of self-employment and how much work they are actually doing.

self-employed people increased by 103,000 to 4.80 million (15.0% of all people in work).

Just as a reminder the self-employed are excluded from the official wages data. There is more reinforcement for the labour market being tight here.

Total hours worked per week were 1.03 billion for February to April 2017. This was 0.7 million more than for November 2016 to January 2017 and 15.4 million more than for a year earlier.

We are left with the concept of underemployment here I think which measures the gap between the work that people are doing and what they would like to do. Sadly the UK does not have an official measure of this unlike the US with its U-6 data. We only have flickers of insight via the growth of self-employment which needs to be sub-divided into positive and negative and the rise of zero hours contracts. In terms of influencing pay there seems to have been an associated rise in job insecurity but we have no clear measure of this.

Comment

The real wage squeeze we feared for this year is now upon us and we face the grim reality that it has been more than a lost decade for them.

Looking at longer term movements, average total pay for employees in Great Britain in nominal terms increased from £376 a week in January 2005 to £502 a week in April 2017; an increase of 33.5%. Over the same period the Consumer Prices Index including owner occupiers’ housing costs (CPIH) increased by 31.8%.

The cross-over was in early 2006. This poses all sorts of problems for the Ivory Towers who will look at the employment numbers and forecast much stronger wage growth. Of course they were usually responsible for the increasingly inadequate employment data as we note that one thing they are certainly very poor at is adapting to ch-ch-changes.

Grenfell Tower

Let me express my deepest sympathies for anyone involved in the dreadful fire there which started this morning.

 

 

What do the UK self-employed actually earn?

One of the features of the credit crunch era in the UK has been the rise or growth if you prefer in the numbers of people who are self-employed. This has led to a debate as to whether it has been a voluntary choice or people have felt forced to do it or more likely a combination of the two. The overall effect from it has been to be one of the driving forces behind this recorded by the UK Office for National Statistics.

For September to November 2016, 74.5% of people aged from 16 to 64 were in work, the joint highest employment rate since comparable records began in 1971.

In terms of numbers the situation is as shown below.

self-employed people increased by 133,000 to 4.77 million (15.0% of all people in work)

If we start with the increase in latest figures we see that the rise in self-employment is only just shy of the rise in employees (144,000) . If we look back over the credit crunch era and start from the beginning of 2008 we see that self-employment has risen from 3.847 million to 4.775 million. Putting that another way the rise of 928,000 is some 44% of the overall rise in employment of 2,118,000. Thus the UK “jobs miracle” has seen self employment at the heart of it.

Putting it another way the numbers of self-employed look on their way to pass the numbers of people in public-sector employment.

There were 5.44 million people employed in the public sector for September 2016. This was: 12,000 more than for June 2016: 10,000 fewer than for a year earlier

So we may yet see a cross-over with the only issue being all the changes around how public-sector employment is defined and measured.

The sex issue

There is another quirk in the numbers which goes as follows. In relative terms men are more likely to be self-employed as in there are more than twice as many whereas total employment is only 13% higher. But in the credit crunch era the increase in female self-employment has been higher than the increase in male self-employment meaning that the proportionate increase is much higher. I would be interested in readers thoughts as to why there has been such a shift towards women and girls becoming self-employed?

Pay and wages

This is an issue because the official wages ( strictly average weekly earnings) data omits the self-employed entirely. Actually it also omits smaller businesses as the threshold last time I checked was 20 staff. This poses all sorts of problems especially as the number of selr-employed has been growing.

AWE is based solely on the Monthly Wages and Salaries Survey (MWSS), which covers employees working in businesses with 20 or more employees in all industrial sectors in Great Britain (an adjustment is made for smaller businesses).

Is adjustment the new word for imputed? Anyway this was all reviewed by someone who pops up on here from time to time which is Dr. Martin Weale who if you recall regularly flip-flopped when he was at the Bank of England. The lack of self-employment data did not seem to get a mention from the good Dr. who is now a fellow of the Office for National Statistics in a Yes Minister style move.

New Information

As we lack official data we need to dig and mine for what we can and the Royal Society for the encouragement of the Arts Manufactures and Commerce has been on the case. It gives us a bleak house style opening.

Bleak headlines such as ‘80% of self-employed people in Britain live in poverty’, and ‘Self-employment used to be the dream. Now it’s a nightmare’ are increasingly common.

Fortunately they decide that for many the outlook is in fact much brighter.

Previous polling by the RSA found that just 19 percent of the self-employed started up in business to escape unemployment — a finding that is repeated across multiple studies.

If we look at the earnings of the self-employed we again start with a troubling view.

A recent study by the Resolution Foundation found that the average pay packet of the self-employed has barely moved in 20 years, while research by the Social Market Foundation shows that half the self-employed now earn below the National Living Wage. The Family Resources Survey appears to corroborate these findings, showing that the median full-time self-employed worker earns a third less than the typical employee,

But there is again a response in that this may be how many want it.

According to the Understanding Society Survey, the self-employed are nearly just as likely as employees to say they are satisfied with their income

The Financial Times points out that it looks like self-employment earnings are indeed lower than otherwise for some at least if this is any guide.

A new report by the RSA (the Royal Society for the encouragement of Arts, Manufactures and Commerce) confirms this has come with a price tag for the public purse: 18.8 per cent of the self-employed are in receipt of tax credits — payments to low-income working households — versus 10.6 per cent of employees.

The FT takes this further.

One in seven workers is now self-employed but their typical weekly earnings are only about £240 a week, less than they were 20 years ago after adjusting for inflation.

So about half of the official average weekly earnings figure.The Resolution Foundation put it like this last October.

The recovery in earnings over the last year means that they are almost back to levels last seen in the late-1990s at around £240 a week, though this is still 15 per cent down on 1994-95 returns.

Also the RSA point out that as we have discussed on here many times the self-employed are a very diverse bunch to say the least. They identify some 6 sub-groupings or if you prefer they have four more tribes than Frankie goes to Hollywood. They are Visionaries (22%), locals (13%), classicals (11%), survivors (24%), independents (19%) and dabblers (11%).

If we move beyond pay there are of course other differences with the employed.

There is no access to Statutory Maternity Pay should they become pregnant, nor is there recourse to Statutory Sick Pay should they fall ill at work. Recent government moves to establish a National Living Wage and to auto-enrol workers onto a private pension scheme have passed them by. Insecurity is inherent across all the above tribes and is as much a problem for the high-skilled as it is for the low-skilled.

Comment

Back on the 14th of December I looked at the situation of the self-employed via what has become called the gig economy.

In total I did five shifts, and earned an average of £8.10 per hour. The London living wage is supposed to be £9.75, according to London authorities. The national required living wage is £7.20 but goes to £7.50 in April next year.

This was Izabella Kaminska of the FT and as it is often necessary to be critical of that media organisation let us today look at its good side which is research and writing like this. Indeed as today’s self-employment article is by Sarah O’Connor it is a case of lets hear it for the girls (of the FT). But as the RSA reminds us the gig economy is only one sector of the issue although it gets media prominence. We learn that overall the self-employed earn less than the employed often quite a bit less as we wonder if that is why Dr.Weale and others omitted them from the official data series. However we need to add that some prefer it that way although of course some will not.

Oh and the official wage data also omits smaller companies as I pointed out earlier. How is that going? From the RSA.

Equally impressive has been the growth in the number of micro businesses, defined as firms with zero to nine employees. In 2000 there were 3.5m micro businesses in the UK. Today there are closer to 5.2m. While much of the expansion has been driven by one-person firms, the number of micro businesses with employees has also increased. 8.5 million people in the UK now own or are employed in a micro business.

Oh dear…….

We know so little about the economics of the growing number of UK self-employed

The post credit crunch period in the UK has seen a labour market performance of two halves. The good part has been the way that employment has been strong as illustrated by the latest official Economic Review.

The UK labour market continued to show its strength in the 3 months to April 2016, with the employment rate among those aged 16 to 64 increasing to 74.2%, up from 74.1% in the 3 months to January 2016 and 73.4% over the year.

This is a factor in the unemployment rate fall to mid-2005 levels. However the less good part has been the way that wage growth has broken with past relationships and remained weak. Old employment models ( some of which exist unchanged in Ivory Towers) would predict wage growth of the order of 4-5% if they looked at the employment/unemployment situation. Whereas the reality is of numbers close to 2%. The welcome improvement in real wage growth has in fact mostly come because of lower inflation rather than any acceleration in wage growth.

Employment for older people

There are no doubt some in the older age groups who welcome the availability of work, however some may be less willing.

Female participation over the age of 60 has increased by 21.8% since 2010, almost double that for males, and is likely to be heavily influenced by the increase in the state pension age for females in recent years.

One thing we can be clear about is that “early-retirement” is less frequent now and that this has impacted on the labour force.

The increase in the activity level over the age of 50 represents the largest driver of the growth in the activity level for men and women since 2010,

The self-employed

Tucked away on its website the Office for National Statistics has done some in depth research into self-employment. Let us remind ourselves of the basic theme at play here.

The level of self-employment in the UK increased from 3.8 million in 2008 to 4.6 million in 2015.

However this added to something which seems to have begun from around 2001 as we note like in my analysis of Monday that the credit crunch has often added to pre-existing trends.

While this strong performance is among the defining characteristics of the UK’s economic recovery, the recent rise in self-employment is the extension of a trend started in the early 2000s.

We do learn some other things as well.

Part time self-employment grew by 88% between 2001 and 2015, compared to 25% for the full-time mode. As a result, part-time self-employment accounts for 1.2 percentage points of the 1.6 percentage point increase in the self-employment share of all employment between 2008 and 2015.

There seem to be various factors at play but the research suggests much of this is older people using it as a way of transitioning to unemployment and if asked say they are happy with their lot. Indeed there is a clear group who have had high earning jobs and seem content with their lot. We also get an insight into both which economic sectors they are in and also the geography.

The fraction employed in finance and business services has risen considerably, they are relatively concentrated in the South East and London

We even get a brief glimpse of the wages/earnings situation.

Analysis also suggests that those moving from employee positions to self-employment tend to have somewhat higher pre-transition hourly earnings than workers moving to new employee positions: trends which are more consistent with workers making a positive choice, rather than being forced to be self-employed.

So a hint for some of them at least. For newer readers the reason I highlight this is that the self-employed are excluded from the official wages series data, both the monthly average earnings series and the  annual ASHE survey. This was never a good state of play and it gets worse as the number of self-employed grows.

Today’s Data

In terms of quantity the situation continues to improve.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.4%, the highest since comparable records began in 1971……The unemployment rate was 4.9%, down from 5.6% for a year earlier. The last time it was lower was for July to September 2005.

However the price of labour continues to disappoint as we see that even in what looks like very favourable circumstances ( this is what was previously described as full employment) it does this.

Average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.3% including bonuses and by 2.2% excluding bonuses compared with a year earlier.

So real wage growth relies on low inflation which is troubling if you expect inflation to rise as I described only yesterday.

Between March to May 2015 and March to May 2016 in real terms (that is, adjusted for consumer price inflation) regular pay for employees in Great Britain increased by 1.8% and total pay increased by 1.9%.

Those who prefer our old inflation measure the Retail Prices index or RPI can knock around 1% off that. Oh and that self-employment issue will not go away.

self-employed people increased by 300,000 to 4.79 million (15.1% of all people in work) ( this is over the past year).

Post Brexit?

The numbers above are before the Brexit referendum but we do get a look from the Agents of the Bank of England about the post referendum economy.

A majority of firms spoken with did not expect a near-term impact from the result on their investment or staff hiring plans. But around a third of contacts thought there would be some negative impact on those plans over the next twelve months.

So for the majority L.I.F.E.G.O.E.S.O.N as Noah and the Whale put it whilst some have fears about activity slip-sliding away. The real question is to whether the latter group feel this temporarily or more permanently.

Comment

The official data tells us a rather hopeful story. Here we have strong employment growth which has pushed the unemployment rate much lower and real wages are growing. The cloud in that silver lining is that wage growth is very low for such circumstances. Also there are some more pages you can tear out of your economics textbooks such as the ones covering “full employment” and NAIRU ( Non accelerating inflation rate of unemployment).

Meanwhile if we dig deeper we see signs that the official picture is too rosy. For example whilst I welcome the extra research into the self-employment sector we need to know much more about what they earn and where it stands on the choice/compulsion spectrum. Also there is the issue of underemployment which our official monthly data misses out. According to the TUC it exists.

There were 2.3 million people underemployed in early 2008, however underemployment rose rapidly following the recession and reached 3.4 million in early 2014. It has fallen slowly in the last year to reach just under 3.3 million in early 2015 – but this is still over 900,000 higher than it was before the recession.

Hopefully it has improved over the last year and there is an official update suggesting it fell to 8.9% in the first quarter of this year. But it is apparently outweighed by overemployment of 10.5%!

Meanwhile at the stroke of a pen or indeed movement of a computer mouse reported reality can get better. From the Institute for Fiscal Studies.

Prior to this year, DWP’s official statistics adjusted for inflation using the (now discredited) Retail Prices Index (RPI). Given that RPI inflation is generally higher than CPI inflation, this means that trends in living standards now look more favourable than did previous versions of the government’s statistics.

Time for Freddie Mercury and his band mates.

It’s a kind of magic,
It’s a kind of magic,
A kind of magic,