The labour market: employment gains but historic lows in earnings

The six-year real wage squeeze has no recorded historical precedent.

The six-year real wage squeeze has no recorded historical precedent

The September Labour Market Statistics continue to show increases in employment and falls in unemployment, but these are set against record lows in earnings growth.

The employment rate rose to 73.0 per cent in May-July, from 72.9 per cent in February-April. As in last month’s figures, this matches the pre-recession peak employment rate at the turn of 2008.

The unemployment rate again fell quite sharply to 6.2 per cent, from 6.6 per cent, but still remains above the pre-recession level of 5.2 per cent. In numbers, over two million people are unemployed; this is 400 thousand higher than just before the crisis.

The number of people employed rose by 74,000 on the quarter, and unemployment fell by 146,000. The difference is mainly made up by a rise of 114,000 in inactivity; this is the largest rise in inactivity for five years, but follows the rate falling to a historic low at the start of the year. Self-employment was little changed on the quarter, with the increase in employees divided evenly between full (+34K) and part-time (+30K) work.

On the year, the increase of 774,000 in employment was shared fairly evenly between employee jobs (424K) and the self-employed jobs (368K). While over the past year the tendency towards self-employed work has been a little less marked, 70 per cent of the total increase in employment since the pre-crisis peak has been in self-employment.

The release also includes an industrial breakdown of the employment increase in the second quarter; this shows employment growth across the economy, though with particularly striking increases in professional, scientific and technical activities (2 per cent on the quarter) and administrative and support services (2.4 per cent on the quarter).

In terms of momentum, (on the LFS measure) the rate of growth of employment has slowed a little to 0.2 per cent in the latest figures from a quarterly growth rate of around 1 per cent at the start of the year. Set against ongoing strength in GDP growth (and fairly flat average hours) this is likely to mean gains in measured productivity; however, potential gains here still are not translating to earnings.

For total pay, with base effects caused by behaviour in response to the tax change last year now worked through, the headline rate for average weekly earnings was 0.6 per cent in July, up from the recent (but distorted) low of -0.1 per cent in June. Leaving aside distortions, annual growth of 0.6 per cent is exceptionally low. AWE growth has only twice been lower, once and only very briefly in 1967, and then in 2009, when the financial sector bonuses snatched just at the start of the crash were working out of the figures.

Looking at ‘regular pay’ figures, which exclude bonuses, the headline rate in July was at an all time low (since the series began in 2001) of 0.7 per cent for the third month in a row. The long-run chart below shows very clearly how sustained this record low growth in earnings has been.

Average weekly earnings annual growth, per cent

Labour market graph 1j

Source: ONS

While CPI inflation has been below target for eight months in a row and was at 1.5 per cent in August, this is still more than double the latest earnings figures, and the six-year squeeze in real earnings continues. In his speech to the TUC conference, the governor of the Bank of England confirmed that real wages had fallen by around a tenth since the onset of the crisis, unprecedented since the early 1920s.

These convulsions came in the wake of austerity after the First World War; while similar in magnitude, the contraction lasted only two years. A six-year real wage squeeze has no recorded historical precedent.

Geoff Tily is a senior economist at the TUC

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