Wednesday, 19 November 2014

Official data confirm big real pay squeeze in year to April 2014, but high earners, women and part-timers are squeezed less hard while ‘job stayers’ in continuous employment a enjoy real pay rise

The Office for National Statistics has just published the provisional findings of the 2014 Annual Survey of Hours and Earnings (ASHE).   

While the latest ASHE findings confirm that the big squeeze on real pay continued between spring 2013 and 2014 the detailed figures show relative winners and losers, with employees who remained in continuous employment over the year enjoying a real pay increase and women seeing a narrowing in the gender pay gap.

Growth in median weekly earnings of 0.6% (to £417.90) for all employees (full-time and part-time) is lower than the corresponding figure of 0.8% pay growth indicated by the ONS’ average weekly earnings statistics and adjusted for consumer price inflation represents an annual reduction in real pay of 1.1%. The median annual pay increase for full-timers (0.1%, to £518 per week, i.e. a reduction in real pay of 1.6%) is lower than at any time since comparable records began in 1997 and well below the increase for part-timers (0.6%, to £161.10 per week). However, the underlying pay situation looks better when one strips out the effect of changes in the mix of employment over the course of the year and focuses solely on the majority of employees who have remained in the same job for at least one year. These ‘job stayers’ enjoyed an annual median pay increase of 4.1%, providing a real terms pay rise of 2.4%.

Full-time women employees saw a bigger pay increase (0.6%, to £461.90 per week) than male full-timers (0.3%, to £557.80 per week), though male part-time employees (with an increase of 1.4% to £151.40) did slightly better than women (1.3% to £166.10). This helped the median gender pay gap to narrow from 10% to 9.4%, the smallest gap between male and female pay since 1997.

There was a slight increase in pay inequality, the weekly pay of the top 10% of earners increasing by more than that of both median earners and the bottom 10% of earners. For full-time employees the top 10% of earners saw pay growth of 0.4% (to £1,024.40 per week) compared with just 0.1% for the bottom 10% (to £287.90 per week). The discrepancy was even larger for part-time employees where the increase for the top 10% of earners (1.2%, to £397 per week) easily outstripped that for the bottom 10% (0.2%, to £50 per week).

Overall, the annual pay snapshot at one level provides a familiar picture of a UK workforce still feeling the squeeze and continuing to become more unequal in terms of pay, but also presents a challenge to some well-worn narratives by showing that ‘job stayers’ are faring relatively while women are making some, albeit slow, progress toward closing the pay gap with men. 

Wednesday, 12 November 2014

Bank of England signals return to 2% real wage growth next year as more jobs, falling unemployment and vacancies close to pre-recession peak give a boost to pay

The Office for National Statistics (ONS) this morning released the latest set of UK labour market data, mostly covering the three months July to September 2014, while the Bank of England has also published its latest quarterly Inflation Report.

This is the most encouraging set of labour market figures for several months, combining a return to strong employment growth (up 112,000 in the quarter to 30.79 million) with a sharp fall in unemployment (down 115,000 to 1.96 million) and average weekly earnings growth of 1.3% (excluding bonuses), just outpacing the corresponding 1.2% consumer price inflation rate. The count of unemployed people claiming Jobseekers Allowance fell by just over 20,000 in October to 931,700.

On the face of things both the employment rate (73.0%) and the unemployment rate (6.0%) are unchanged from the figures published last month. However, this reflects the 3 month rolling comparison of quarterly estimates from the Labour Force Survey which means change in the latest set of figures for July to September is benchmarked against April to June rather than compared month by month. On the rolling comparison, the employment rate increased by 0.2 percentage points in the latest quarter while the unemployment rate fell by 0.3 percentage points.    

Most significant of all the level of job vacancies (687,000) is now only 9,000 shy of the pre-recession peak, the number of unemployed people per vacancy falling to 2.9. This suggests a tighter jobs market and thus a return to sustained if modest real wage growth in the coming months, though the main beneficiaries will be skilled workers for whom demand is rising faster than supply rather than people in the lower half of the jobs league who will continue to feel the big squeeze. Consequently, higher real wage growth on the average weekly earnings measure may not show up in measures of median earnings.

The prospect of an improved average outlook for pay was reflected by Bank of England Governor Mark Carney in his opening remarks at the Inflation Report press conference. Mr Carney pointed to “encouraging signs in the labour market”, with the Bank now expecting annual real wage growth of around 2% by the end of 2015 as a result of nominal pay growth rising to around 3% against a backdrop of a (well below target) rate of consumer price inflation of around 1% (which also reduces the odds on an early rise in the base interest rate). The boost to nominal pay growth, the Bank reckons, will be due to a combination of unemployment falling further toward the pre-recession rate of just over 5% and a recovery in growth in labour productivity.   

Asked whether this marked the end of the historically long real wage squeeze the Governor, perhaps wisely, commented that “one swallow doesn’t make a summer” and that current economic momentum will have to be sustained.  This is significant given that Mr Carney began the press confidence with the ominous remark “the spectre of economic stagnation” is evident in continental Europe. This explains why the Bank has made a slight downward adjustment to its forecasts for both UK economic growth and inflation. Despite this, however, the Bank reckons the UK economy will grow at an above trend rate in 2014 (3.5%), 2015 (2.9%) and 2016 (2.6%), supported by employment and pay growth, increased business investment and improving consumer confidence. Let’s hope Mr Carney and his colleagues are proved right.  

Monday, 20 October 2014

No wonder free movement of EU labour is a hot topic for UK

I would not describe myself as a Eurosceptic and also think immigration is generally positive for the British economy. However, a decade ago when a group of central and eastern European countries joined the EU I questioned the wisdom of immediately allowing citizens of those countries to enter the UK labour market.

My concern was that free movement of labour within the EU, though correct in principle, had the potential to cause practical difficulties given the very substantial income disparity between existing member states and these former communist bloc newcomers. The sensible course, in my opinion, would have been for the UK to follow the example of most other existing member states at the time and take advantage of scope for transitional restrictions on migration from the new member states while the latter integrated into the EU economy. Instead, the UK adopted an open door policy, resulting in a flow of eastern Europeans across our borders that has proved so large as to alter the complexion of many local communities and, in the process, not only propelled immigration to the top of the political agenda but also placed the issue of the free movement of labour at the centre of debate over the UK’s membership of the EU.

Politics aside, most economists contend that my concern has proved misplaced. My worry was that in an economy oversupplied with less skilled labour, an inflow of labour from low income countries would reduce the employment of less skilled British born people and/or lower their pay levels. As things turned out I was wrong about the employment effect of immigration, mainly because a decade ago I hadn’t quite appreciated how ultra-flexible the UK’s uber deregulated labour market has become. Nowadays it seems as though you can pump as much labour supply into the market as you like and still create lots of low productivity jobs because pay takes the strain and prices people into work, albeit the impact of migration on pay is generally found to be small, in part because the national minimum wage provides a floor to pay at the bottom of the market.

The national minimum wage has proved a policy Godsend in this respect since, despite protestations to the contrary, it’s pretty clear that UK employers have been hiring EU migrants primarily to cut wage costs. This is apparent from a recent study by the Chartered Institute of Personnel and Development (CIPD).  Oddly, while the CIPD is at pains to stress that ‘what the vast majority of employers are not doing is hiring migrants to lower the wage bill’ its key headline is that employers have been turning to EU migrants to fill entry level job vacancies, particularly for lower skilled jobs, because they are more skilled and ‘a bit older and have more work experience’. If hiring migrants with skills and experience into low skilled entry level jobs at low pay isn’t about cutting the wage bill for a given value of output I’d sure as hell like to know what it is.

It’s obvious that bosses, along with migrants themselves, benefit most from immigration. British born people benefit as consumers too, assuming the lower cost of employing migrants feeds through to product and service prices rather than adds to profit. But for British born workers the blessing is mixed, with immigration one of several supply side factors now keeping the lid on growth in pay with millions of people, British born and migrants alike, employed in jobs that pay less than a living wage. No wonder that immigration is a hot political topic. No wonder that free movement of labour within the EU is a matter of debate.  

Wednesday, 15 October 2014

Rise in number of economically inactive people enables unemployment to fall below 2 million despite slower pace of job creation as self-employment records sharp quarterly fall

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months June to August 2014.

The fall in unemployment to below 2 million (1.97 million or 6% of the workforce, the lowest rate since late 2008) will grab the headlines but the latest figures suggest an underlying change in the pattern of the labour market recovery. The pace of net employment creation (up just 46,000 in the latest quarter to a total of 30.76 million, with a working age employment rate of 73%) has slowed markedly compared with earlier in the year, due in large part to a sharp quarterly net fall of 76,000 in self-employment. As for employees, continued growth of 107,000 in the quarter was split roughly between full-timers and part-timers (causing another slight fall, to 1.35 million, in the number of people working part-time because unable to find a full-time job). However, unemployment has nonetheless continued to fall sharply because slower employment growth was dwarfed by a big quarterly rise of 113,000 in the number of economically inactive people, almost half of which is accounted for by a rise in the student population. The fact that the latest fall in unemployment has been driven by rising inactivity rather than employment creation also helps explain why the associated fall of 18,600 between August and September in the number of people unemployed and claiming job seekers allowance (JSA) is also much lower than in recent months.

There is slightly better news on the rate of growth in average weekly earnings (unchanged at 0.7% including bonuses and up to 0.9% when bonuses are excluded) though this is still much lower than the accompanying rate of price inflation and there is little sign of an imminent pay surge to end the real wage squeeze.   

Monday, 13 October 2014

Is Mr Farage the answer to our political purgatory?

The BBC, ITV, Channel 4 and Sky News this morning outlined plans for a series of three televised debates between the political party leaders during next year’s General Election campaign. As I write, it’s unclear whether the suggested formats will be acceptable to those invited, and those excluded (the Greens and the Nationalists) from the plans are bound to be unhappy. Much of the difficulty in determining the format stems from the ever rising profile of UKIP and its leader Nigel Farage, who the broadcasters know is the only mainstream politician other than London Mayor Boris Johnson likely nowadays to draw a really big TV audience for such programming.

Mr Farage is popular because he is a populist and conveys an image of having lived a bit that many people clearly relate to. There was a time when more politicians came across this way. Last week marked the 40th anniversary of the October 1974 General Election and the BBC Parliament Channel re-broadcast the accompanying results programme.  I was a couple of months short of my 17th birthday at the time but remember watching the journalists quizzing varied pollsters, pundits and politicians as they pondered on what it all meant for the parties.

Looking back, most of those involved 40 years ago are now sadly departed, whether to heaven, hell or (God forbid) some kind of endless purgatory for politicos nobody knows. What struck me most, however, was the contrast between politician and pundit. All of the former (at least in the hour or so I watched the re-broadcast) were of an age to have lived through the Second World War, in most cases as adults. Not only were they wrapped in the aura of experience, their manner and accents reflected the class mix of the vox pop which also punctuated the programme. The pundits, generally somewhat younger, appeared trendier, more sophisticated and socially a bit removed from the general populous, often aided by the occasional drag on a cigarette, the latter anathema by today’s values but then a cool counterpoint to the common person style of Prime Minister Harold Wilson with his pipe and slight northern drawl.

Well over a generation on, and the distinction between politician and pundit has all but disappeared. Most look and sound the same and tend to have had similar education and experience. They are not so much a political establishment as a political class that transcends the ideological views and party labels they display.  Moreover, in the era of multiple think tanks, unelected quangos and digital commentators the members of the political class are increasingly interchangeable, today’s pundit or quangocrat becoming tomorrow’s politician and vice versa.  Rightly or wrongly, to the everyday Janet or John outside this class all that appears to matter at any particular time is whose in and whose out rather than the underlying state of the nation.  The prospect of continued coalition government further exacerbates this feeling, offering the nauseating sight of parties condemning each other’s policies while happy to get into bed together so as to grab a slice of ministerial power.

Continuation of this situation could itself be said to amount to a form of political purgatory for the living, with endless hand wringing about ‘connecting with the people’ combined with perpetual frustration that nothing will ever change. The only means of escape is to replace the political career as we have come to know it with an ethos of political service: opportunity to participate in democratic politics extended through increased devolution to a wider citizenry, combined with greater ongoing influence over the activities of all those – political bodies, public agencies and corporations – who affect our lives.        

I don’t yet know enough about Mr Farage to determine whether he is a genuine outsider seeking to break the prevailing mould or a canny insider who thinks his best chance of rising within the ranks of the political class and advancing his own ideological beliefs is to exploit disenchantment with the economic and social consequences of its stultifying grip on power.  Whatever the configuration of public debate ahead of the General Election this is the fundamental question he and his party need to answer. As for the other parties, they must demonstrate that political change means more than simply rearranging the Whitehall furniture.  

Thursday, 25 September 2014

Labour's 'togetherness' agenda: genuinely social democratic but hardly radical

This time last week all eyes were on Scotland for the referendum on independence. Not since the dim distant days when Andy Stewart hosted the annual TV Hogmanay show have so many English people tuned in after midnight to watch events unfold north of the border. As might have been expected it didn’t take long for southern Unionists to drop the saltire and refocus on what the majority No vote meant for England, though the post-referendum hangover was strong enough to turn the Labour Party Conference, which has just finished in Manchester, into an overall rather flat affair.

Ironically, while the efforts of Labour politicians ultimately proved crucial in breaking the momentum of the Yes campaign, Labour finds itself engaged in a struggle to prevent a new constitutional settlement for the UK as a whole from limiting its ability to determine key areas of domestic policy. Labour could find itself unable to form a majority in either the Scottish Assembly or some form of de facto ‘English Parliament’, restricting the executive power of a future Labour government to purely UK matters, notably defence and foreign affairs plus whatever authority remained over fiscal policy within a more devolved Union. This raises the odd possibility of a Labour Government able to decide whether to take Britain to war but unable to fundamentally re-shape the economic and social face of the realm.

Judging by some of the overblown reaction to domestic policy announcements made in Manchester this week there are those who would greet such a prospect with alacrity, though perhaps with a caveat over whether Mr Miliband, whose keynote speech was overshadowed by geo-political events and widespread unfavourable comment on his performance, should be responsible for anything at all. Yet while the detail and possible effects of Labour’s proposals deserve close scrutiny between now and the General Election, it’s hard to see much in what was said this week that could be described as radical in any sensible definition of the word.

Is it radical to propose an £8 per hour National Minimum Wage by 2020? Hardly, I suspect it will be close to that level whoever is in power at the time. Is it radical to propose a Mansion Tax? Surely, the neo-liberal Orange Book Lib Dems support this. Is it radical to propose raising the top rate of income tax to 50p? Only very recently such a rate was considered low and perfectly reasonable.

The truth is that Labour isn’t proposing anything particularly radical at the moment and will fight the General Election on a manifesto which boils down to saying a Miliband Government would pay down the fiscal deficit in a somewhat fairer way than either the current coalition or a majority Conservative government, while prioritising spending on a firmly non-privatised NHS. Labour’s opponents might criticise this 'togetherness' agenda for being wrong or na├»ve, and will undoubtedly question whether the current Labour leadership is fit to govern. Labour's supporters will present it as a clear and genuine social democratic alternative to the current centre-right offering. But please don’t call it radical.   

Wednesday, 17 September 2014

pace of jobs recovery slows as real pay squeeze eases

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months May to July 2014.

Although the UK labour market continues to improve, there are tentative signs in the latest figures that the balance between job creation and pay growth may have started to shift. The increase of 74,000 in the number of people in work (which now totals 30.6 million) is less than half that recorded in the previous quarter and the lowest quarterly increase for a year. Moreover, in contrast with recent quarters almost all the net new jobs (92%) were part-time. Pay meanwhile ticked-up a bit with growth in regular pay (excluding bonuses) rising from 0.6% to 0.7%, the gap between regular pay growth and CPI inflation (the real pay squeeze) narrowing from -1.3% to -0.9%.

Despite the slower pace of job creation, unemployment fell faster than in the previous quarter, in large part because of a sharp, and welcome, fall of 106,000 in youth unemployment. The number of unemployed 16-24 year olds (excluding those in full-time education) is now below half a million (489,000), though the unemployment rate for this group (14.2%) is still more than twice the overall average rate (6.2%, now at a six year low). It therefore appears that the jobless, and especially the young jobless, are doing better in accessing the jobs being created.

The latest labour market data thus add to the quandary facing the Bank of England over when to start to raise interest rates. The unemployment and pay data point to tighter conditions but the jobs data suggest an easing in the pace of the jobs recovery, which might suggest improved prospects for labour productivity. Overall, therefore, these data do not suggest any immediate need for an interest rate rise.