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