The real economy: low pay, low productivity, low exports and low investment

Today’s labour market statistics continue the story of recent months: rising employment and stagnating earnings.

Today’s labour market statistics continue the story of recent months: rising employment and stagnating earnings.

Employment in the three months from May to July stood at 29,836,000 – up 80,000 from the previous three month period. We can expect the government to boast about the fact that this is another record, but a couple of cautions are necessary.

One is that the record employment level is the result of impressive growth in employment of people over 65. For the second month running, there are over a million people aged 65 and over in employment. This figure has risen 150,000 in just two years and is 50 per cent higher than it was before the recession.

These record figures are a mixed bag: to the extent that they represent people not having to give up jobs they loved, they represent a valuable increase in liberty, but to the extent they represent people with inadequate pensions, unable to afford to retire, it definitely isn’t.

The necessary counterpart of this trend is also that employment among younger people has not been growing as strongly. In fact, employment among younger people has still not returned to the pre-recession peak – even though the number of people aged between 16 and 64 has risen by more than 700,000:

16 – 64 year olds, number employed, total population (000s)


Employment level

Total population

Mar-May 2008



May-Jul 2013



Because of this increase in the working age population, the improvement in the employment rate is much less impressive than the increase in the employment level. In fact, the improvement in the employment rate mainly took place in 2012; this year it has pretty much flat-lined:

Employment rate 2

Unemployment also came down by 24,000, using the International Labour Organisation’s definition. The Claimant Count measure of people claiming JSA fell 32,600 between July and August, the tenth successive month of reductions. My key indicator for unemployment, the ratio of the number of unemployed people to the number of job vacancies fell again, from 4.9 to 4.6 (but this is still substantially higher than the pre-recession norm of about 2.5).

This is good news, but there are signs that the labour market still isn’t healthy. The number of unemployed under-25s rose 10,000, to 960,000. The number of unemployed women has remained over a million for more than two years; and the number of people unemployed over 6 months was up 37,000.

Among the unemployed will be NHS workers – the public sector employment figures, also released today, reveal that employment in the National Health Service fell by 21,000 between the first and second quarter of this year and NHS employment is now at its lowest level since the third quarter of 2008. Employment of workers in “other health and social work” also fell, by 5,000; employment in this sector has fallen 17.7 per cent since the general election.

The underemployment crisis also continues, with the number of part-time workers who say they are working part-time because they could not get a full-time job rising a further 25,000. The number of workers in this position has more than doubled since the start of the recession:

Part-time workers who could not get full-time jobs (000s)

Mar-May 2008


May-Jul 2013


The final sign that there is something unhealthy here is the continuing decline in real wages. Between June and July average weekly earnings (total pay) fell slightly, from £475 to £474.

This is the third successive fall – a sequence that has never happened in this series of figures, which goes back to 2000. This is because of the fall in bonus pay (now that the finance industry high fliers have dodged their income tax by getting their bonuses paid in April) but even if we look at regular pay (i.e. excluding bonuses) the annual rate of increase has fallen, from 1.1 to 1.0 per cent.

Even in cash terms, average weekly regular pay has essentially been frozen for four months:

Average weekly earnings – regular pay

Weekly Earnings


Change year on year

(%, 3 month average)

Aug 12



Sep 12



Oct 12



Nov 12



Dec 12



Jan 13



Feb 13



Mar 13



Apr 13



May 13



Jun 13



Jul 13



We need to be clear what is happening here. If you have had the same job for a year, the chances are that that your pay will have risen by more than this. According to Incomes Data Services, while the Retail Price Index for July was 3.1 per cent and the Consumer Price Index was 2.8 per cent, the median pay settlement in the three months to the end of July was 2.5 per cent. This is slightly below inflation, but not as bad as the AWE figures.

The AWE figures are showing what statisticians call a ‘compositional effect’ – there’s always a great deal of ‘churn’ in the labour market, with jobs disappearing and being created. What has been happening for some time is that the jobs that are being created tend to be lower paid, bringing the average down. As the TUC reported in July, 77 per cent of net job creation since July 2010 has taken place in industries where the average wage is less than £7.95 an hour.

This means that we are becoming a lower pay economy.

When this happens for short periods it isn’t necessarily a bad thing – in a recession it may be better to see pay fall than for people to lose their jobs. But this has now been going on for years, and pay rises have been low by historical standards for a decade.

A low pay economy, with low productivity, low exports and low investment are not a good basis on which to compete in the post-recession world.

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One Response to “The real economy: low pay, low productivity, low exports and low investment”

  1. Antoine Bisset

    Dismal standards of living compared to the rest of Western Europe. Low wages and appalling infrastructure. It will get worse. Zero hour contracts for all.

    “This means that we are becoming a lower pay economy.
    When this happens for short periods it isn’t necessarily a bad thing…”
    This is one of the most craven, stupid and cowardly things that I have ever seen on this subject. Does the writer really think that the British worker is worth so much less than his Norwegian equivalent? Does he really think that the economy should pay six and seven figure salaries to bosses and that workers should be paid so much less than Germans?

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