The employment figures can’t hide the fact that Britain needs a pay rise

Today’s employment figures include a couple of headlines the government will be grateful for and what seems like an improvement on the pay front. But when you look at the labour market from a slightly longer perspective, the picture is less brilliant.

Low pay

Today’s employment figures include a couple of headlines the government will be grateful for and what seems like an improvement on the pay front. But when you look at the labour market from a slightly longer perspective, the picture is less brilliant.

The first headline is that, for the first time ever, there are more than a million over 65s in employment. This is the most unambiguously positive figure, and employment of people over retirement age has certainly contributed to the period of strong employment growth that began two years ago.

Between Feb – Apr 2011 and Feb – Apr 2013, the number of over 65s in employment grew by 115,000. This is partly because the number of older people is growing: if the employment rate had stayed the same, the number in employment would in any case have risen by 55,000. But it also reflects an increase in the employment rate for older people: from 8.9 to 9.5 per cent.

This isn’t necessarily anything to do with macro-economic policy though, it is a long-term trend that began at the turn of the century and was hardly dented by the recession:

Older people employment

The second headline is that the employment level is (again) the highest ever recorded: 29,756,000. Compared with Feb – Apr 2011, this is an increase of 528,000. In that time, the employment rate has risen from 70.6 per cent to 71.5 per cent.

Unfortunately, quite a few of those jobs have been atypical; fewer than half have been employees, nearly a quarter have been part-time and more than one in ten have been unpaid family workers or places on government schemes:

Employment breakdown

In addition, there have been increases in involuntary temporary (53,000) and part-time (202,000) employment.

And it looks as though the labour market improvements may be petering out:

Employment rate 1

UNemployment rate 1

The period of strong improvement began in late summer/autumn 2011 all but finished after a year. The unemployment rate has been essentially stable for six months and the employment rate for four months.

But we shouldn’t over-criticise the labour market’s current performance. A 218,000 increase in the number of employees working full-time seems less feeble when you remember that the economy has essentially been stagnant during this period. And the number of unemployed people per job vacancy has fallen to 4.9 – the lowest figure since Jan-Mar 2009.

The main reason for the reasonable figures has been the collapse of wages. In March, average weekly earnings (total pay) were 0.6 per cent higher than they had been a year before, using the 3 month average figure. In April, this jumped up 1.3 per cent. Using the less reliable single month figures, the improvement was even more marked – from minus 0.3 to plus 3.3 per cent!

It is a sign of the times that this seems such good news, when the Retail Price Index for April was 2.9 per cent. And it is very likely indeed that this improvement is a blip. The change on the year (three month average) for regular pay was significantly lower – 0.9 per cent.

The difference is accounted for by what happened to bonus pay. The rate of annual increase jumped from minus 2.6 per cent in March to plus 15 per cent in April. In Finance and Business services, the rate rose from minus 2.6 per cent to plus 22.5 per cent!

In cash terms, the average weekly bonus in this sector was £69 in March and £143 in April. Almost certainly, this is because those with the power to do so put off receiving their bonuses until they would no longer be subject to the 50 per cent tax rate. The distorting effect of City earnings is obvious.

This is a one-off factor, and average weekly earnings will very probably fall back in next month’s figures. We are still heading towards an economy in which recovery is sluggish and low-paid, low-skilled, low-productivity, low-investment jobs. As you may have heard one or two people remark, Britain needs a pay rise.

12 Responses to “The employment figures can’t hide the fact that Britain needs a pay rise”

  1. LB

    Here’s an idea.

    Why not cut taxes? That has the same effect as a pay rise.

    Doesn’t push up prices, because of firms having to push the wage costs on prices.

    Doesn’t drive work to low wage economies, because wage costs stay the same.

    Why not curtail low skilled migration?

    That why the supply is reduced. Hopefully at the start that sucks people off welfare into work. Then as demand rises, wages go up.

  2. blarg1987

    But what services would you cut to achieve this and therefore what indirect costs could they have on the individual?

  3. the caber ninja

    Here’s an idea – make tax avoidance a criminal offence, then restaff HMRC to appropriate levels required to hunt down all the tax that is owed, both individual and corporate. Should boost the revenue take considerably and take the pressure off cuts to the fabric of society.

  4. the caber ninja

    Here’s another idea – increase all benefits by 15% right across the board. This will have a far better impact than any tax cut because benefit claimants spend ALL THEIR MONEY, every penny of it, which then goes straight into the economy. Whereas a tax cut would only stimulate expenditure for those earners who dont have debts to service or dont already earn so much that a tax cut would have no effect on already established expenditure patterns.

  5. treborc1

    If you asked the Labour leader and his mate Gromit he’d say welfare of course.

  6. LB

    No services would be cut. If people have their money, they can then buy their services that they want, rather than the ones they are forced to get, or not get, but 100% paid for.

    If we take welfare, the annual cost to pay money out is 5% of the sums. That’s many many times even what a rip off private company charges. It’s extortion.

  7. LB

    But its spent. It’s gone. End result is debt. Under your scheme.

    Isn’t Labour’s mantra investment, investment and investment?

    If you read what I had written, I didn’t say tax cuts for the rich. I said tax cuts for the poor.

    Ah yes, you don’t want tax cuts for the poor do you? As a guess, you’re dependent on the poor paying taxes for your living. Is that the case?

  8. blarg1987

    So basically there would be no services and people would opt into the service provision they want, so if someone has two kids, and a high probabality of cancer then the probabaility is that they would have to pay moreover all, or not pay for things like police and fire cover etc.

  9. LB

    Would people choose the NHS/Health insurance? Pretty certain they would.

    Given the 6K a year for each child to educate them, they would educate them. They would be a lot more demanding of their schools.

    Police – common good. Still taxed.

    Roads. Paid for by road tax / fuel duty. Hypothecated. Why should none road users get the cash?

  10. blarg1987

    Many private medical insurers do look at family histories etc, so if there is a high risk of a diseaes in the family or even do a DNA test that shows a high probability of cancer, or heart disease you would have to pay a higher premium.

    Yes it costs the state 6K a year to educate a child, still cheaper then private schools which can charge anything like 6K a term.

    So overall the likelyhood is that for the individual they would have to pay more for a simular if not poorer service is basically the answewr, so notreally cost effective at all.

  11. LB

    And lots don’t.

    A large reason for the mess in the NHS, is that they are regulator insurer and supplier in one. That needs to be split. Each leg has to be independent.

    Equally, you don’t want a US model where people are uninsured.

    The model that works is the Swiss one. Separation of the the three parts. Competition for the insurers and suppliers. Standard costs for insurance, unless you want perks.

    e.g. Unlike the NHS, if you cut the wrong leg off in Switzerland, you are not working again. Period.

  12. LB

    Now, ask yourself why?

    In the UK is an option. So people who are high risk will sign up, and the insurers get a representative sample of the bad risks.

    If you have universal coverage, that can still happen. You need a mechanism to make sure the bad risks get covered for the standard cost, and the insurers have to know they don’t get all the bad risks.

    In CH this is the mechanism. Lets say you are on dialysis. Insurers can refuse to insure you. However, you then tell the state, and the state will pick an insurers name out of a hat, according to market share. That insurer has to insure you at the standard cost. Since insurers aren’t suppliers, it has no effect on your treatment. It has no effect on your costs. For the insurers they know they get a market share of bad risks and no more.

    Win win.

    Everyone gets insured.

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