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.

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.

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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.

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