Friday, 17 April 2015

Remarkably strong quarterly surge in employment helps boost regular pay growth

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

The remarkably strong quarterly 248,000 rise in employment indicates a surge in the pace of job creation at the end of last year, helping to cut unemployment by a further 76,000 to a rate of 5.6%. People working full-time account for two-thirds of the total rise in employment this quarter, most of whom are employees on permanent contracts. With the number of people in work now above 31 million the working age employment rate has risen to 73.4%, a new record.

The fact that very strong employment growth had only a relatively modest impact on unemployment in the quarter is explained by a large fall of 104,000 in the number of economically inactive people, itself likely to be an indication of improved labour market opportunity.

A further fall in unemployment combined with both a record employment rate and record job vacancies (up 32,000 in the quarter to 743,000) has also given a boost to the rate of growth of regular pay (i.e. average weekly earnings excluding bonuses) which has increased from 1.6% to 1.8%. Regular pay growth is a better indicator of underlying wage pressure than total pay (including bonuses), the rate of which fell from 1.9% to 1.7%.  


Together with zero price inflation, the jobs boom is helping improve real incomes despite the fact that nominal wage pressure remains subdued. However, the rise in employment and real wages continues to mask severe underlying weakness in labour productivity. This will have to improve markedly if the current recovery in living standards is to be sustained into the medium and long-term.

Tuesday, 14 April 2015

Record jobs but we’re only just back to normal hours

During the course of the UK General Election campaign the Conservatives and Liberal Democrats have pointed to the number of jobs created since 2010, while Labour and many of the minority political parties instead emphasise the squeeze on real earnings. As a result, I’m often asked why a record employment rate has yet to trigger an obvious economic feel good factor. There are several ways of looking at this but something that is often overlooked is the average amount of work people are doing, which has only just returned to what was considered normal prior to the recession.

At the start of 2008, just before the recession struck, UK workers were on average working 32.2 hours per week. This was around the average for most of the 2000s and around an hour less than the average for the 1990s, the fall over the decade due to a shift toward jobs offering shorter hours. At the time of the last General Election in 2010 this figure had, in the wake of the recession, fallen to 31.6 hours – a loss equivalent to almost a week’s work over the course of a year, which is clearly enough to make the average worker feel worse off.

Since then average hours have risen again but (by the end of 2014) were only back to where they were just before the recession i.e. 32.2 hours per week. This is despite lots more jobs being created and a record employment rate, reflecting the fact that there has been a further shift toward jobs offering shorter hours. However, for most of the period during which average hours were returning to normal the amount people were on average earning for each hour they worked was also falling in real terms. The lack of a noticeable feel good factor is therefore understandable.


For the average worker to feel as well off as before the recession we will thus have to see either an increase in the length of the average working week (say taking it back to where it was in the 1990s) or higher productivity per hour worked in order to boost hourly earnings. Assuming that most people would prefer to work smarter rather than harder (i.e. enjoy an improvement in their overall economic and social well-being) this suggests that measures designed to raise productivity and pay per hour should be at the centre of the General Election debate. Sadly, despite lots of rhetoric about the situation of ‘hard working families’, such measures are a best only implicit in much of what we have heard from our politicians in the election campaign so far.    

Monday, 23 March 2015

Pick and mix politicians should spare us detailed manifestos

Although it has being going on for months, the UK’s General Election campaign doesn’t officially start until next week. I doubt I’ll be alone in wishing it was all over already but just as many people seem excited by the prospect. However, something I won’t be doing this time is giving much attention to the various political party manifestos, the magazine-style documents the political parties publish detailing their policy platforms. These used to offer a guide to who to vote for but seem far less meaningful in an era of ‘pick and mix’ coalition politics.

While manifestos have always represented the outcome of ideological horse-trading within parties they usually contain some degree of internal policy coherence. But compromise between parties effectively destroys this. The 2010 General Election, for example, produced a Coalition with a programme for government that didn’t appear in either the Conservative or Liberal Democrat party manifestos. Nobody voted for the policy mix subsequently pursued and we’ll never know if the quickly cobbled together package of measures has produced superior economic and social outcomes to what would have occurred if the Conservatives had governed alone as a minority administration. Either way, however, the possibility of another hung Parliament and thus some kind of post-Election arrangement between one or more parties makes it harder to take manifestos in the traditional sense at face value.

In my view political parties should only publish detailed manifestos if they also rule out a formal coalition or some other informal post-electoral pact in the event of a hung Parliament. Otherwise parties should simply issue a short statement of overall intent – akin to an organisational mission statement – along with a clear list of red line policies they would either not deviate from or not sign-up to following any post-Election agreement with other parties.

Politicians who wish to garner public trust should demonstrate that they are more interested in policy than politics. The best way to lose trust is to stand for office on a detailed policy agenda merely to ditch this once the votes have been counted.

      

Wednesday, 18 March 2015

Disappointing pay figures show why Chancellor can't take credit for rise in real wages

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data. These mostly cover the three months November 2014 to January 2015 but also include estimates for public and private sector employment in Q4 2014.

The jobs figures continue to be strong, with employment up 143,000 on the quarter (to a total of 30.94 million people in work) and unemployment down 102,000 (to 1.86 million). The working age employment rate has reached a new record of 73.3%. Full-timers account for more than two thirds of the quarterly rise in employment, all the net rise due to more employees in employment (the number of self-employed fell by 9,000). Excluding the effect of major statistical reclassifications, the number of people employed in the private sector increased by 148,000 to 25.64 million in the final quarter of 2014, while the number employed in the public sector fell by 5,000 to 5.23 million.  

There was a quarterly fall in both the unemployment rate (down from 6% to 5.7%) and the working age inactivity rate (down from 22.3 to 22.2%). The number of people long-term unemployed (i.e. unemployed for more than 12 months) fell by 55,000 in the quarter (to 629,000). Youth unemployment fell by 12,000 to 743,000 in the quarter and has now fallen below 500,000 if full-time students are excluded from the total (the overall youth unemployment rate down from 16.6% to 16.2%). The number of people claiming Jobseeker’s Allowance fell by 31,000 to just over 791,000 in the month to February 2015.  


But the average weekly earnings figures disappoint yet again, the rate of growth in both average weekly total pay (down from 2.1% to 1.8%) and regular pay (i.e. excluding bonuses, down from 1.7% to 1.6%) slowing slightly. Although pay is now growing faster than the 0.3% rate of consumer price inflation this nonetheless dents Chancellor of the Exchequer George Osborne’s positive Budget day narrative. Real wages are rising only because low global oil prices, which Mr Osborne can't take credit for, are pushing the economy toward zero inflation; in our high employment/low productivity jobs market pay packets still aren't benefiting from the so-called ‘long-term economic plan’.   

Monday, 16 March 2015

How to view Britain’s post-recession jobs recovery

The performance of the UK labour market since 2010 will feature in political rhetoric between the Budget day on Wednesday 18 March and General Election polling day on May 7. With politicians and commentators set to trade opinions on the subject, here is my brief take viewed in the light of what I thought would happen five years ago  

At the outset of the recession I expected unemployment to rise higher than it has (to a peak of around 10% rather than the outturn of 8.5%) but also expected a very sharp and sustained fall (to well below the pre-crisis rate of 5.2%) once the economy returned to above trend growth. 

The projected effect of the recession on unemployment was based on the assumption of no underlying change in the rate of labour productivity growth and stable real wages. Unemployment only rose less than expected because productivity and real wages at first fell and then remained subdued during the recession and subsequent period of stagnation.

On the subsequent sharp fall in unemployment I argued in a lecture to HR directors in March 2012 'Unemployment: the case for optimism" that this was highly likely because the structural unemployment rate is nowadays much lower than in previous decades (the lecture was a response to a CBI claim at the time that the UK's structural unemployment rate was around 8%, allied to which was a call for further labour market deregulation).

In my view the only barrier to a sharp fall in unemployment in 2012 was the coalition's macroeconomic policy stance, which served to stymie economic recovery in the first few years after 2010. In the event we had to wait another year for a solid improvement in aggregate demand and thus what I would consider a genuine jobs recovery. In terms of trajectory, job growth was weak in 2010 and 2011 and then only very modest in 2012 and the early part of 2013. It was only from mid-2013 onward when the economic recovery really gathered steam that we saw a very fast rate of job growth and acceleration in the fall in unemployment. Unsurprisingly, it is also only in this latter period that we saw the balance of job creation switch away from part-time, temp and self-employment jobs toward full time, permanent jobs for employees. 

The conclusion I draw from this is that had the coalition pursued a less restrictive macroeconomic course after May 2010 the jobs recovery enjoyed since 2012 would have begun much earlier (probably in 2011) and the labour market would by now have tightened sufficiently to allow much stronger real wage growth. Moreover, only the strong aggregate demand driven phase of the jobs recovery from mid-2013 onward can be considered unalloyed good news, which means we should view put figures related to net employment growth between 2010 and 2015 as a whole in the perspective of what has happened to productivity and real wages over the same period.

Although it is possible to portray the use of more workers at lower average real wages to produce a given level of output as good economic news, the reality is that this is a sign of underlying economic malaise rather than strength and does not bode well for long-term improvement in living standards.


Wednesday, 25 February 2015

The disturbing rise in zero hours contracts

The Office for National Statistics (ONS) this morning published its latest estimates on zero hours contracts (contracts with no guaranteed hours). Responses to the Labour Force Survey (LFS) indicate that almost 700,000 people in the UK were employed on such a contract in the final quarter of 2014 (over 100,000 more than the year before). Responses to a separate business survey meanwhile finds organisations employed 1.8 million people on such contracts in August 2014, up from the previous estimate of 1.4 million for January 2014, though the increase could be due in part to seasonal factors. The LFS and business survey estimates aren’t directly comparable but in general terms the discrepancy between number of contracts and people employed on contracts is due to the fact that some people have more than one contract.

The latest estimates of the number of people employed on zero hours contracts is disturbing not only because the share of jobs without guaranteed hours of work is increasing (up from 1.9% of total employment to 2.3% in the year to Q1 2014) but also because we were told that the economic recovery was likely to see their use diminish. On the contrary, it looks as though zero hours contracts are becoming a more ingrained feature of the UK’s employment landscape, which is likely to buttress poor pay and working conditions in the lower reaches of the labour market. 

Although the ONS is uncertain how much of the 19% annual increase from 586,000 to 697,000 in the number of people employed on zero hours contracts is due to increased reporting by people previously unsure of how to define their contractual status, the big leap in public awareness of zero hours contracts was in 2012 and 2013 which suggests that most of the rise between 2013 and 2014 is probably due to a greater number being employed in this way. But any rise is disappointing given the expectation that a tightening labour market would diminish use of these contracts.

It can of course be argued that, despite the apparent increase, the share of zero hours contracts in total employment remains relatively small and that some people (especially students and older workers) like the flexibility they provide. What this ignores, however, is that the ability of employers to hire people in this way undermines the bargaining ability of other workers, thereby dampening pressure for improved pay and conditions at the bottom end of the labour market. The practice also undermines the spirit of the statutory National Minimum Wage, since although people employed on zero hours contracts are entitled to the minimum wage for the hours they work the lack of guaranteed hours is a source of income insecurity. Consequently, what appears to be a gradual structural shift toward use of zero hours contracts in our economy is therefore disturbing. 

Tuesday, 24 February 2015

When it comes to judging the Common Good at Work the Church should not rely on Living Wage alone

The Wages of Sin.  So read the front page splash on yesterday’s issue of The Sun newspaper whose reporters found the Church of England doesn’t always practice what it preaches when it comes to paying staff the hourly Living Wage. The headline is obviously a bit rich coming from a red top tabloid that for almost half a century has profited as a purveyor of insidious soft porn. But the story highlights one of many issues that stem from advocacy of this particular change in employer practice.

I have no problem whatsoever in church people calling for higher wages for the working poor. On the contrary, Catholic Social Teaching provides a central plank of my own personal ideology and I’ve always tried my best to apply such principles as the Common Good or The Just Wage whenever considering public policy issues. However, it’s important to put specific calls in their complete economic, social and moral context so as to avoid being tripped up by the law of unintended consequences.

It’s inevitable that some cash strapped church organisations will struggle to pay workers the Living Wage right away, despite the best of intentions. But more to the point before deciding if this is something they or similarly placed organisations in all sectors of the economy should be told to aspire to we need to know how they will foot the bill.

Although it’s often asserted that the Living Wage in effect pays for itself because the workers who benefit from it will somehow become more productive there is little or no evidence to support this. Ultimately therefore something has to give. The common implicit assumption is that the cost of paying the Living Wage is met out of organisational profit or surplus. If not, which is likely to be the case in organisations operating on very tight margins where low pay is most prevalent, the news is less good for workers. The outcome could be fewer jobs albeit research on the effects of big minimum wage hikes indicates that employers tend instead to cut hours of work or if possible trim other parts of the overall reward package. Either way, a substantial increase in the hourly pay rate runs a substantial risk of being offset by a reduction in workers weekly income, especially if the result is lower employment which leaves some people with no income at all.

Payment of the Living Wage is therefore only a very partial guide to whether a Living Wage employer is a ‘good employer’ or whether a general shift of employer practice in this direction furthers the Common Good. One can see why the Church of England and others wish to see better terms and conditions for working people but when it comes to the realm of work the test of the Common Good does not rest on the Living Wage alone.