UK employment remains incredibly strong with even a flicker from real wages

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%.

Today’s data

Employment

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.

Unemployment

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.

Wages

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.

Comment

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…..

 

 

 

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.

 

 

UK employment improves and so does underemployment

As we look at the UK labour market today let us start with something which in one way is good news and in another poses questions. From Reuters last week.

Manchester United winger Jesse Lingard has signed a new contract that will keep him at Old Trafford until 2021, the Premier League club said in a statement on Thursday.

Lingard, who will earn up to 100,000 pounds a week according to British media reports, has an option to extend the deal by a further year.

Firstly congratulations to Jesse and for once it is nice to see an English player benefit from the largesse of the Premier League these days. There is invariably hype in the exact numbers but he seems to have approximately trebled his wages which will do there bit for the average wages series in the future. However those who watched an outstanding display by Juventus last night in the Champions League as they put Barcelona to the sword have been mulling the concept of relativity. From @Football_Tweet

– Paulo Dybala earns €3M a season at Juventus. – Jesse Lingard earns €6M a season at Man Utd.

we return to a familiar question which is how much of the wages growth is in effect a type of inflation?

The impact of Robots

If we look ahead on a more general level then we can expect to see not only more robots in our economy but more advanced ones appear. Not quite as advanced as the ones in the Foundation saga of Isaac Asimov that I am currently reading again but considerable advances are being made. According to Bloomberg such improvements are likely to have an impact on labour markets and wages especially.

Robots have long been maligned for job-snatching. Now you can add depressing wages and promoting inequality to your list of automation-related grievances.

Industrial robots cut into employment and pay for workers, based on an new analysis of local data stretching from 1990 and 2007. The change had the biggest impact on the lower half of the wage distribution, so it probably worsened America’s wage gap.

The exact results are as follows.

One additional robot per thousand workers reduces the employment-to-population ratio by 0.18 percentage points to 0.34 percentage points and slashes wages by 0.25 percent to 0.5 percent, based on their analysis.

Food for thought as we look forwards in years and decades and of course ground which many of the best science fiction writing has warned about.

Today’s data

The quantity data remains pretty strong as you can see.

There were 31.84 million people in work, 39,000 more than for September to November 2016 and 312,000 more than for a year earlier.

There was an additional kicker to this as we got a glimpse into a potentially improving situation regarding underemployment as well.

with an increase in full-time employment (positive 146,000) partly offset by a fall in part-time employment (negative 107,000)………….strong demand for labour is translating into a shift from part-time to full-time employment, and an increase in the average hours worked per week by both full time and part-time employees.

Here is the analysis of hours worked.

Average hours worked per week increased from 32.0 to 32.4 in the 3 months to February 2017, the highest since July to September 2002, largely due to more hours being worked over the Christmas and New Year period compared with recent years.

Fewer part-time workers are looking for full-time work.

Data released today (12 April 2017) show that this measure continued to contract with the proportion falling to 12.6%, down from 14.2% a year ago (and down from a peak of 18.4% in 2013). This proportion is now at its lowest since March to May 2009, but still well above its pre-crisis average of 8.3%.

So it looks as though the situation regarding underemployment has improved as well although the data is only partial and let us finish this section with the unemployment numbers.

There were 1.56 million unemployed people (people not in work but seeking and available to work), 45,000 fewer than for September to November 2016 and 141,000 fewer than for a year earlier.

What about wages?

These were the same as last month in terms of growth.

Between the three months to February 2016 and the three months to February 2017, in nominal terms, total pay increased by 2.3%, the same as between the three months to January 2016 and the three months to January 2017.

Actually there was a rise in the month of February by 2.9% on the year before so maybe a hopeful hint of a pick-up! We will find out as we go through the bonus months of March and April. One thing we do know is that both Sky News and the Financial Times ( “UK wages have grown at their weakest pace in seven months,”) have not checked this.

The official numbers on real wages are below.

adjusted for inflation, average weekly earnings grew by 0.2% including bonuses and by 0.1% excluding bonuses, over the year, the slowest rate of growth since 2014.

So we have something of a discontinuity as we had some real wage growth in February it would appear. Let us cross our fingers that it continues but sadly it seems unlikely ( the comparison is flattered by bonuses falling last year). Of course even if we use the figures for February alone then real wage growth was negative if we compare it to the Retail Price Index.

Also the exclusion of the self-employed from the wages data gets ever more shameful.

self-employed people increased by 114,000 to 4.78 million (15.0% of all people in work).

Can we increase tax on income from wages?

After the debacle of the U-Turn on higher National Insurance contributions from the self-employed there have been arguments that the UK is unable to ever raise more taxes from income. It was interesting therefore to see some international comparisons from the OECD today.

The average single worker in Belgium faced a tax wedge of 54.0% in 2016 compared with the OECD average of 36.0%…..Belgium had the 4th highest tax wedge in the OECD for an average married worker with two children at 38.6% in 2016, which compares with the OECD average of 26.6%.

Not the best place to be single and childless it would appear! But now the UK.

The average single worker in the United Kingdom faced a tax wedge of 30.8% in 2016……..The United Kingdom had the 22nd lowest tax wedge in the OECD for an average married worker with two children at 25.8% in 2016,

So in theory we could if we wished to reach the peak that is Belgium. The Anglosphere ( US, Australia and Canada) if I can put it like that has similar numbers to the UK although the Kiwis stand out at only 17.9% for a single person. The lowest is Chile at 7%.

Interestingly with its debt and deficit problems income in Japan is slightly more taxed than here.

Comment

I would like to take a step back and consider the last couple of years. Remember the number of economists and media analysts who warned about what they called “deflation” and sometimes they shouted it so loud it was “DEFLATION”? Well it morphed into this.

By late-2014, an increase in nominal wage growth and low CPIH inflation, led to average real earnings increasing by 1.7% in the 18 months to mid-2016. ( Office for National Statistics).

This of course boosted the economy mostly via the retail sales boom but also in other ways as I pointed out on the 29th of January 2015.

However if we look at the retail-sectors in the UK,Spain and Ireland we see that price falls are so far being accompanied by volume gains and as it happens by strong volume gains. This could not contradict conventional economic theory much more clearly. If the history of the credit crunch is any guide many will try to ignore reality and instead cling to their prized and pet theories but I prefer reality ever time.

If there was a musical theme to the deflation paranoia then it was “clowns to the left of me, jokers to the right” from Stealers Wheel. Please do not misunderstand me I am talking about the so-called experts here not those influenced by them. Sadly we seem to be heading into a period where something they wanted ( higher inflation) will slow the economy down. I wonder how the inflationistas will spin that?

 

 

 

 

 

UK real wages fell in January ending over 2 years of growth

Today sees us receive the latest UK labour market data with the main emphasis being on wages as we mull how they will compare with inflation as 2017 progresses. The phase where low inflation boosted real wages is over for now at least as we cross our fingers and hope it will not rise too far. On that front we have had some better news from the recent dip in the price of crude oil but as a ying to that particular yang there has also been this.

In case you missed it, iron ore in China is up 10% since Monday. Cheers ( @DavidInglesTV )

On the usual pattern we would know the latest inflation data but that is not due until next week whilst our statisticians perhaps drink gin, play jigsaws whilst wearing a base layer and a cycle helmet.

Public-Sector Pay

This is something which has perhaps been too much in the background. For many who work in the public-sector wages have been under an austerity style squeeze for some time now. The area has also got more complex as many such jobs have been outsourced to private companies as for example many of the staff in Battersea Park work for a company called Enable now rather than Wandsworth Council. In terms of scale here are the numbers involved.

There were 5.44 million people employed in the public sector for December 2016. This was little changed compared with September 2016 and with a year earlier. Public sector employment has been generally falling since December 2009.

Although the picture gets ever more complex.

The Institute of Fiscal Studies has looked into the wages trend and point out that it is more complex than it may initially appear.

Public sector pay has been squeezed since public spending cuts began to take effect from 2011, and it looks set to be squeezed even further up to 2020. However, this comes on the back of an increase in public sector wages relative to those in the private sector during the Great Recession.

They think that this is set to continue for the rest of this decade.

On the basis of current forecasts and policy, we expect public sector pay to fall by 5 percentage points relative to private sector pay between 2015 and 2020. This would take the raw wage gap to its lowest level for at least 20 years.

However the starting point may not be what you would have expected.

In 2015–16, average hourly wages were about 14% higher in the public sector than in the private sector, according to the Labour Force Survey. After accounting for differences in education, age and experience, this gap falls to about 4%.

This is a complex area as we mull the usefulness of some type of education. For example by interest (athletics) I know people who specialise in the physiotherapy area where attainment is higher in that graduates are recruited but some for example have never manipulated someone’s back. Of course there is also the issue of pensions.

Reforms to public sector pensions have reduced the value of the pension public sector workers can expect to enjoy in retirement, though this is still probably more than private sector workers can expect

I do not know what the IFS has been smoking here as public sector pensions look ever more valuable in relative if not absolute terms to me.

Good News

This as so often these days comes from the quantity numbers in the labour market report.

There were 31.85 million people in work, 92,000 more than for August to October 2016 and 315,000 more than for a year earlier……..There were 23.34 million people working full-time, 305,000 more than for a year earlier. There were 8.52 million people working part-time, 10,000 more than for a year earlier.

The extra number of people in work helped reduce unemployment as well, oh and in case you assumed it was an obvious link it is not always that simple due to a category for inactivity.

There were 1.58 million unemployed people (people not in work but seeking and available to work), 31,000 fewer than for August to October 2016 and 106,000 fewer than for a year earlier………….The unemployment rate was 4.7%, down from 5.1% for a year earlier. It has not been lower since June to August 1975.

 Bad News

This was demonstrated by this on the wages front.

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

So we see a slowing from the 2.6% reported last time. If we look into the single month detail it is worrying as you see December was 1.9% and January 1.7% giving a clear downwards trend. If we look further we see that those months saw much lower bonus payments than a year before and in fact falls as for example -3.9% and -2.7% was reported respectively. Putting it another way UK average earnings reached £509 in November but were £507 in both December and January.

Ugly News

This comes from the position regarding real wages.

Comparing the 3 months to January 2017 with the same period in 2016, real AWE (total pay) grew by 0.7%, which was 0.7 percentage points smaller than the growth seen in the 3 months to December 2016.

There has been something of a double whammy effect at play here as inflation has risen as we expected but sadly wage growth has dipped as well. So the period since October 2014 when real wages on the official measure began to rise is certainly under pressure and frankly seems set to end soon.

If we look at January alone then real wages were 0.1% lower than a year before as inflation was 1.8% and using the new headline measure ( from next month) they fell by 0.3% on a year before. Using the Retail Price Index or RPI has real wages falling at an annual rate of 0.9% in January.

Comment

There are quite a few things to laud about the better performance of the UK economy over the past few years as employment has risen and unemployment fallen. Although of course we would like to know more ( indeed much more…) about the position relating to underemployment which is one of the factors at play in the situation below.

The number of people employed on “zero-hours contracts” in their main job, according to the LFS, during October to December 2016 was 905,000, representing 2.8% of all people in employment. This latest estimate is 101,000 higher than that for October to December 2015 (804,000 or 2.5% of people in employment).

For a while this was also true of real wages although to be fair the situation here mostly improved due to lower levels of recorded consumer inflation. Sadly if the data for January is any guide that happier period is now over even using the official inflation data.Of course this also omits the ever growing self-employed sector.

City-AM

Here are my views on US interest-rates from today’s City-AM newspaper

 

 

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,

UK employment hits a record high but wages are weaker and unemployment higher in December

Today sees the latest labour market figures from the UK and let us celebrate what has been a good news story which is the rise in employment. The February Economic Review puts it thus.

The strength of the labour market and the increase in employment of particular has been one of the defining features of the economic recovery.

Indeed the employment rate may well be as good as it has ever been in current lifetimes although changes in the data series make it difficult to be absolutely sure.

The employment rate among those aged 16 to 64 rose from 70.1% in the three months to November 2011, to 73.0% in the three months to November 2014 and to 74.0% in the three months to November 2015: the highest level since at least 1971.

We do not celebrate this enough and it certainly was not expected by the UK establishment because the other side of the coin has been an equally welcome fall in unemployment.

the headline unemployment rate fell from 8.5% to 5.1% over the same period.

How do I know they did not expect it? Well the increasingly hapless Governor of the Bank of England would not have put this at the centrepiece of his original and now many times replaced Forward Guidance.

In particular, the MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate has fallen to a threshold of 7%,

Something has changed over the past year

There has been a change in the pattern of work which reverses what has so far been a feature of the recovery above. Let me give you the bigger picture first.

Average actual hours of work fell from 33.1 hours per week in the three months to November 1995 to 32.0 hours in the same period in 2007, before falling to 31.5 hours in the three months to November 2009. This trend reversed during the economic recovery, returning average actual weekly hours to its pre-downturn level by 2013.

So pre credit crunch weekly hours worked were gently declining which it kicked lower then it recovered like the other numbers above.  But more recently it has done this.

However, in recent months average hours have weakened slightly again.

Whilst it looks worrying it may be a sign strength and confidence actually.

this movement is consistent with workers taking advantage of stronger real earnings growth or having the confidence to take more holidays relative to the past few years.

Or on the less positive side it could be that employers are responding to the slowdown in economic growth.

One thing that does seems to be certain is that fewer people are working longer hours of the order of 50 or 60 a week. Their numbers were reduced by the Working Time Directive but the fall seems to have started again. Also you may have a wry smile at the statistical issue that some part-timers work more than a full-time week. Oh well!

Zero Hours Contracts

There are people who are recorded as working no hours in the numbers above but the obvious answer is incorrect. These are pretty much those who are either ill or on holiday. For those who want to know the Zero Hours situation it is this.

The estimated average usual weekly hours for people employed on a zero hour contracts has been around 25 hours in recent years.

So overall good news which has continued this morning as shown below.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 74.1%, the highest since comparable records began in 1971 (and)  205,000 more than for July to September 2015

The rub as Shakespeare would put it is that this sort of analysis does on the subject on underemployment but if far from a full analysis of it. Also we have the issue of the number of employed continuing to rise as the economy slows according to the economic growth (GDP) figures. As the great Yogi Berra reminded us.

It is just like deja vu all over again…

These numbers do not go well together.

the UK economy grew by 0.5% in the final quarter….. total weekly hours worked grew by 1.7% in the latest quarter,

Productivity anyone?

What about wages?

This was a bad news story as above target inflation sent real wages into a tailspin but more recently we have been in a  better phase. However this is fading as the monthly growth rate has been falling since the annualised 3 month average reached 3% in late summer as you can see below.

Average weekly earnings for employees in Great Britain increased by 1.9% including bonuses

The idea of a fading of the numbers was reinforced by the fact that December on its own registered growth of 1.5% which was another slowing and was also below the 2.5% of December 2014.

If we move to real wages we see that the situation was given quite a boost by the decline in inflation. This is one of the clearest areas where I am different from economists both and pandering to the UK establishment as they had a blind spot to the way that the inflationary surge of 2010/11 pushed real wages lower and hope for short memories as the lower inflation now pushes them higher. Why do they do this? Because the official view is that inflation is good for us when it is plainly not.

If we leave that matter to the consciences of those who put personal advancement ahead of reporting reality we see that the good news story is that real wages have been in a much better phase. Indeed incomes have according to the Resolution Foundation finally broken new ground.

We estimate that median income is roughly 3 per cent higher than in 2007-08, standing at around £24,300.

Actually on traditional measures of inequality we are doing better as well. However there is something of a swerve in this as it is pensioner incomes (think triple lock) which have done much of this and the wages position is improved but still.

Typical hourly pay looks unlikely to return to its peak before the end of the decade and there is very little sign that any of the ‘lost growth’ of recent years will ever be restored.

Another failure for the output gap theory that the Bank of England and many economists have clung to through thin and thin during the credit crunch era. Or to put it another way the Resolution Foundation has tweeted this today.

Still a long way to go in the earnings recovery, with average weekly pay £27 short of peak.

 

Comment

If we look at the quantity measures we see that the UK economy has put on an extraordinary performance over the past 3 years or so. Employment has surged and unemployment has fallen substantially and I welcome that unequivocally and pre credit crunch it was what economists were asking for although some have redacted that! The flies in the ointment on these numbers have been worries about underemployment and the issue of zero hours contracts.

The issue of quality or wages has been much more troubled as it took a while to pick-up firstly in response to the employment improvement and then to the later GDP one and has now faded in the latter part of 2015 as the monthly peak of a 3.6% annualised rate in July has been replaced by 1.5% in December. The monthly figures are unreliable but the trend in this period has been clear. We are seeing a better phase for real wages being driven pretty much entirely now by lower inflation. What do our establishment want to do with that? Drive inflation higher! Those who argue for higher inflation are implicitly arguing for lower real wages well for everyone else anyway.

Now after a really good run on all numbers we are facing an issue that the unemployment rate rose to 5.3% in December and total wage growth fell to 1.5% and of course we also know that GDP growth was weaker in the latter part of 2015 as well. So we need to cross our fingers for the early part of 2016 and remember that as long ago as 1983 in Yes Prime Minister Jim Hacker told us that the numbers were manipulated. Time for EMF.

The things, you say
Your purple prose just gives you away
The things, you say
You’re unbelievable

 

 

 

The UK theme of the credit crunch era is employment strong but real wages still lower

Today sees what has become the most important UK data series is issued and if we were in any doubt about that the Bank of England has continually reminded us of that in 2015. Only on Monday Deputy Governor Shafik told us this.

I will wait until I am convinced that wage growth will be sustained at a level consistent with inflation returning to target before voting for an increase in Bank Rate. In this sense, I will proceed with caution.

So we see that wage rises are currently at the front of the queue for providing us with Forward Guidance. However Nemat Shafik appears also to be loading the dice somewhat in terms of the fabled Bank Rate rise.

The recent plateau in wage growth despite the ongoing recovery is one example

Also remember the “never believe anything until it is officially denied” of Jim Hacker fame?

It has never been the intention of the MPC to retain indefinitely the stock of assets purchased as part of QE.

 

How has the labour market done?

If we look at the quantity measure then there has been an excellent performance and one which left naysayers with egg on their face as employment rose and unemployment fell. Of course it left Governor Carney with egg on his face as he used an unemployment rate of 7% as an indicator just as it surged through that to the current 5.2%. Overnight the Financial Times has published new data which suggest that our progress on the quantity measures remains far better than we would have expected considering numbers like Gross Domestic Product.

Companies added jobs at the fastest rate for at least two decades in 2014-15, almost 700,000 across the UK, according to new research.

 

The analysis of job creation and destruction in the private sector in the 12 months to March 2015 by the Enterprise Research Centre found a net 695,500 positions were created. Growing companies hired 2.52m people, while 1.83m jobs were lost.

Good news indeed and something which pre credit crunch we would have been ecstatic about. However the numbers themselves have been challenged in the grounds of underemployment rather than unemployment with the associated issue of zero hours contracts. Also the relationship between employment growth and wages has changed because we have a long way to go to get back to the previous real wage peak. We are left with the question which is how much has changed here as we note the good of employment but wonder if the bad side is that wages have shifted onto a lower path? Let us hope that it is not as low as interest-rates.

Today’s official data has again reminded us of the positive ying of the UK’s employment and unemployment situation.

The employment rate (the proportion of people aged from 16 to 64 who were in work) was 73.9%, the highest since comparable records began in 1971………There were 22.88 million people working full-time, 338,000 more than for a year earlier. There were 8.42 million people working part-time, 167,000 more than for a year earlier.

These are another set of strong numbers and we note that the fear from the early days of the improvement that it was mostly in part-time jobs has ebbed away as full-time job creation has pushed ahead. Although there is the nagging worry that the full-time definition is tenuous at best (you say you are….).

Also we see another credit crunch era landmark for unemployment and in a good way.

The unemployment rate was 5.2%, lower than for a year earlier (6.0%). It has not been lower since the 3 months to January 2006.

Wages

These have underperformed in the credit crunch era and today’s numbers have reminded us of the issue again today. UK real wages using the official CPI  inflation measure peaked at 118 in April 2008 and at the end of October they were at 111.4 or 5.6% lower. So we are still singing along with Kate Bush on this front.

Be running up that road,
Be running up that hill,
Be running up that building.

Whilst we continue to see wage growth in 2015 there has been another sign of some fading of the strength of it.

Comparing the 3 months to October 2015 with the same period in 2014, real AWE (total pay) grew by 2.4 per cent, compared with 2.9 per cent in the 3 months to September.

In essence wage growth is real wage growth right now if we use CPI and around 1% lower if we use RPI and the fading theme was reinforced by the fact that the October number of 1.9% was not only pulling downwards but the weakest monthly number since February as well as being the first number since then to be worse than its 2014 counterpart. If we look at the theories related to the Phillips Curve then I am sure we have thrown them on the scrap heap more than once but they are again exposed here. Also for five years now I have critiqued the “output gap” theories which the Bank of England has pumped out again and again. As the labour market has very little “output gap” and wage growth is fading it is breathtaking that some still cling to it like a raft in white water.

The Resolution Foundation has tried to look forwards to 2016 and their overall conclusion was somewhat downbeat on this front too.

our central scenario has pay growth back down to 2.1% by the end of 2016.

They have developed a decent track record and express fears over what may happen in 2016 as they decide that the low inflation and tightening labour market influences on pay will decline..

Looking to 2016 and beyond, hanging our hopes on either of these would be both a roll of the dice and an exercise in diminishing returns, highlighting the importance of productivity keeping pace with inflation in the longer term.

As it happens today’s figures also pose a question about the new improved trend for productivity growth. If we look at hours worked we see this.

Total hours worked per week were just over 1 billion for August to October 2015. This was: • 6.2 million (0.6%) more than for May to July 2015 • 8.8 million (0.9%) more than for a year earlier.

If we look back we see the annual situation has some growth as GDP rose by 2.3% on a year ago making for a 1.4% productivity rise but if we come really up to date with the NIESR saying we have 0.6% quarterly  GDP growth that means no productivity growth if hours also rose by 0.6%. Has the flowering seen an autumn chill and faded?

Comment

Last time around I suggested that the UK labour market was in a Goldilocks type position although I should have made clearer that I meant relatively for the credit crunch era. Today has seen a clear example of the porridge being just right as we note continued employment growth and falls in unemployment.

However we bite on some salt in the porridge when we note that wage growth has been fading for the past 4 months now (3.6%,3.2%,2.1% and now 1.9%). Has the fall in the inflation numbers influenced this? Also it is a rough and ready calculation but future wage growth prospects are likely to be affected by the apparent end of the productivity blooming. This returns us to the long-running theme on here of real wage growth being in an overall downtrend that if we look back started before this century began. Unless we see a 2001 style “something wonderful” we seem unable to shake it off.

As we turn into 2016 then we are likely to see real wage growth continue if nothing else because if commodity prices remain at these levels inflation will be subdued but one day even the official bodies will have to face up to the fact that the credit crunch provided a paradigm shift in wages. Also we should not forget that there are plenty of issues with the data we receive including the fact that the wages numbers exclude the 4.61 million and rising who are self-employed.

There is a big event tonight so please those of you who are Star Wars fans enjoy! Also around 7 pm UK time something long promised by the Federal Reserve seems on the cards……

Shrinkflation

Chocoholics of a nervous disposition should take care before viewing the picture below.