Jobs or pay – we still haven’t got the hang of delivering on both

There are good reasons to worry that stalling earnings may stifle household demand


Each month, when the employment statistics come out the result somehow always seems to be that either the jobs numbers are weakening but pay is perking up, or the employment and unemployment figures are strong but there are reasons to worry about pay. Today’s statistics fall into the second group, with very good results for jobs but pay possibly stalling again.

Let’s start with the strong points, which are very strong:

  • There are 31,211,000 people employed and the employment rate is 73.7 per cent. These figures have been produced since 1971, and have never been higher.
  • There are 1,749,000 people unemployed and the unemployment rate is 5.3 per cent. These figures are not as good – but are still the best since the recession hit the labour market over seven years ago.
  • The youth unemployment level (653,000) and rate (14.2 per cent) are also the lowest since before the recession.

In the early stages of this recovery, a very high proportion of the new jobs were ‘atypical’ – self-employed, part-time and temporary, but that has been less true for some time. Between the three month from April to June and the three months from July to September, the number of people self-employed grew 38,000 and the number of employees grew 146,000. And if we look at the change from Jul-Sep the picture is even stronger: the number self-employed grew 30,000 but the number of employees grew by 435,000.

Over the last quarter the number of people working in temporary jobs grew by 16,000. But over the year it fell by 41,000, and the number of people in temporary jobs because they couldn’t find permanent ones fell 31,000.

The picture for part-time and full-time employment is a little more complicated. The number of full-time workers has grown steadily, whilst part-time employment seemed for a short while to be in decline but has picked up again in recent months:

Growth of full-time and part-time employment

Picture 1

There’s a bit of a recovery in part-time employment growth that will bear watching for the future. The key point, however, is that part-time and full-time employment are both growing. What’s more, the proportion of part-time workers who are only doing part-time work because they couldn’t get full-time jobs (15.2 per cent) is down on the quarter (from 15.8 per cent) and on the year (from 16.5 per cent).

Finally, I’d turn to the thermometer and stethoscope for judging the health of the labour market. One is the ratio of unemployed people to job vacancies:

Ratio of unemployed people to job vacancies

Picture 2

The other, taken from the labour market flows data, also published today, is the job-to-job flow; that is, the number of people moving from one job to another:

Job-to-job flow

Picture 3

The first you can see as an objective measure – it shows how the labour market is doing at its most basic function, providing jobs for people who want them. The second shows, among other things, how secure people feel about moving to a new job. The first is back to pre-recession levels; the second is nearly there.

I should add, at this point, that these charts don’t show a tremendous record of government success. Indicators like this are supposed to improve after a recession (there’s a reason it’s called the business cycle) and both show a long pause between the end of the recession and the start of the recovery that I’d say is accounted for by the most destructive phase of austerity round 1. God knows what austerity round 2 will do.

And austerity is likely to be particularly bad for demand if household consumption falters. One of the main factors determining household consumption is what is happening to earnings (the other is employment, that’s why a sustainable recovery needs both to be improving at the same time). And I’m a little concerned about earnings. Today’s Average Weekly Earnings figures show what is beginning to looks very like a pause in the recent improvements.

Average weekly earnings

Picture 4

In this chart regular pay (not including bonuses) is measured on the left hand scale, total pay (including bonuses) on the right. Both are measured in cash terms because the annual growth rate we normally concentrate on (2.5 and 3.0 per cent respectively) are, in my view, a bit misleading as most of the growth took place six months ago.

Compared with last month, the total pay AWE figures were down for the private sector overall, services overall and construction. A supplementary analysis of real and nominal average weekly earnings also published to day by ONS shows that, in real terms, average earnings have hardly budged since March:

Average weekly earnings in constant 2000 prices

Picture 5

Of course, this picture may change next month, but there are good reasons to worry that stalling earnings may again act to stifle household demand.

Richard Exell is senior policy officer at the TUC. Follow him on Twitter

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