Wednesday, 19 March 2014

Combination of rising job vacancies and falling unemployment at last breathing life into pay

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months November 2013 to January 2014.

The employment figures continue to be strong, up by a net 105,000 in the latest quarter, though a big rise in self-employment (which increased by 211,000) masked a surprising fall of 60,000 in the number of employees in employment. The latter figure appears odd when set against the broader range of data and should therefore be treated with caution, especially since the entire fall is due to fewer employees working part-time, which was partly offset by an increase in the number of employees working full-time. Moreover, the level of job vacancies increased by 23,000 on the quarter and at 588,000 is 92,000 higher than a year earlier and getting ever close to the pre-recession level.  

Total unemployment on the headline ILO measure fell by 63,000 in the quarter, the unemployment rate falling from 7.4% to 7.2%. The unemployment trend thus remains downward albeit because the ONS calculates change in unemployment on the basis of a quarterly rather than monthly comparison the headline unemployment rate is the same as that published in February. Youth unemployment (16-24 year olds) fell by 29,000 and long-term unemployment (people unemployed for more than a year) fell by 38,000. The administrative count of people unemployed and in receipt of Jobseeker’s Allowance fell by 34,000 between January and February.

Perhaps the most significant news from the latest labour market statistics is that we are at last seeing signs that the economic recovery is breathing life into the pay figures. The combination of job vacancies rising back toward the pre-recession level and falling unemployment has lifted pay growth to within sight of price inflation, especially in the private sector where the real pay squeeze eased markedly around the turn of the year. Regular pay (excluding bonuses) in the private sector is now increasing at an annual rate of 1.6%, not too far off the corresponding 1.9% rate of consumer price inflation. In the public sector regular pay is growing much more slowly (averaging 0.6%), though the figure is higher (1.1%) when financial services organisations are excluded. It is therefore now very likely that the average real pay squeeze will end in the coming months, with private sector workers set to enjoy real pay rises for the first time since 2009.

The better news on pay reflects the changing balance of employment growth. Adjusting for statistical reclassification, the private sector added 118,000 jobs in the final quarter of 2013 while the public sector shed 13,000 jobs. The immediate labour market outlook is thus one of much better news on jobs and pay for private sector workers but continued job cuts and an ongoing severe real pay cut for public sector workers.  

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