Yesterday brought good news in that UK inflation is looking like it will be a little more subdued than our worst fears. However even so today we move onto comparing it with wage growth which is in a phase where it is below the inflation target measure of the Bank of England ( CPI 2.6% ) and even more so compared to the Retail Price Index at 3.6%. We started the week with some ominous news on the wages front as the Chartered Institute of Personnel and Development or CIPD released this survey on Monday.
basic pay award expectations for the next 12 months remain at just 1%
That was a downgrade from the circa 2% that we seem to be rumbling forwards at. According to the CIPD the reasons for this are as follows.
Against the backdrop of poor productivity growth, the report points to an increase in labour supply over the past year as a key factor behind the modest pay projection. This is driven by relatively sharp increases in the number of non-UK nationals from the EU, ex-welfare claimants and 50-64 year olds; although the report is keen to stress the future migration trends appear highly uncertain.
I do not know about you but I was not expecting to see a rise in employment based migration from the European Union being reported! This seems to be predominantly for lower-skilled jobs.
Employers report a median number of 24 applicants for the last low-skilled vacancy they tried to fill, compared with 19 candidates for the last medium-skilled vacancy and eight applicants for the last high-skilled vacancy they were seeking to fill.
This is fascinating in an economics concept and of course yet more dreadful news for the Ivory Tower theorists who face yet again the prospect of explaining why 2+2=5. Labour supply is supposed to have shrunk as EU citizens leave adding to the output gap which means wages will surge. We got something on those lines from Ben Broadbent of the Bank of England a week or two ago. The same Bank of England that makes this mistake every year.
The good news was that labour demand was reported as strong.
the long-term unemployed are finding work more quickly and the amount of workers aged 50-64 who are in employment has risen by around 200,000 during the past year……This is reflected in the quarter’s net employment balance – a measure of the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels in Q3 2017 – which shows an increase from +20 to +27 during the past three months.
Bank of England Agents
They were more upbeat perhaps indicating that bonus pay is on the rise.
Recruitment difficulties had edged higher, and were gradually broadening across sectors and skill areas. Despite this, labour cost growth had been modest, with pay awards clustered around 2%–3%.
There is continuing evidence that labour demand continues its long climb in the UK.
There were 32.07 million people in work, 125,000 more than for January to March 2017 and 338,000 more than for a year earlier…….The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.1%, the highest since comparable records began in 1971.
This backs up the CIPD view that labour demand remains strong and poses yet again a conundrum that was in vogue around 4 years ago. This is that the employment figures look stronger than the economic output ( GDP ) ones. Last time around it was the employment figures which were the leading indicator so let us cross our fingers. Also there was another piece of news hinting at a stronger jobs market.
There were 883,000 people (not seasonally adjusted) in employment on “zero-hours contracts” in their main job, 20,000 fewer than for a year earlier.
Also the numbers employed had something that you might not have thought was true if you read the mainstream media. From Andy Verity of the BBC.
In year to end of June, the number of UK born people working in the UK increased by 88,000. Non-UK born people working increased by 262,000.
I thought everyone was leaving? If we look at the sector mostly likely to be affected EU nationals there has still been growth mostly driven by Bulgarians and Romanians but slower growth than before.
There was further good news here.
There were 1.48 million unemployed people (people not in work but seeking and available to work), 57,000 fewer than for January to March 2017 and 157,000 fewer than for a year earlier……The unemployment rate (the proportion of those in work plus those unemployed, that were unemployed) was 4.4%, down from 4.9% for a year earlier and the lowest since 1975.
For newer readers higher employment mostly means lower unemployment but does not have to as there are other factors such as size of the labour force. The good news extends to the news on underemployment. We only get quarterly hints on this but in the 3 months to June the rate was 0.5% lower than last year at 7.7%. So relatively good but if we look back for some perspective then we see that it was pre credit crunch mostly in the mid 6% range.
There was some better news here which is welcome to say the least.
Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.1%, both including and excluding bonuses, compared with a year earlier.
This means that real wages fell by a little less than the trend predicted.
Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) fell by 0.5%, both including and excluding bonuses, compared with a year earlier.
Actually if we drill down into the monthly detail we see that in terms of official calculations real wages nudged a little higher in June as annual wage growth was 2.8%. This was due to two factors one is that bonus payments were strong and that weekly wages fell by £1 last June so sadly it seems set to drift away. Also for those of us who still look at the RPI inflation figures even this better number still gives a negative answer for real wages.
There is some genuinely good news here as we see that the employment picture remains very strong a year after the EU leave vote ( as the numbers stretch to June). Unemployment is hitting lifetime lows for an ever higher percentage of the population and even wage growth has nudged higher. Yet as ever we need to ask if this is an example of “tractor production is higher?”
As we do so then we need to note that the underemployment numbers are higher giving a rate a bit more than 1% higher than in the pre credit crunch era. So more jobs but perhaps not quite as much more work as one might think. This is a partial explanation of what are wages growth numbers less than half of Ivory Tower output gap style explanations and expectations.
As to the wages numbers themselves we need to remind ourselves that they exclude the self-employed which means that we are likely to need to subtract something. But there is another factor heading the other way which is that we have created more lower paid jobs which seem to have weak wage growth and may be influencing the numbers or what is called compositional change. As ever the numbers let us down or as the TV series Soap reminded us.
Confused? You will be…..