Wednesday, 17 December 2014

Rise in full-time jobs for private sector employees at last gives noticeable boost to real pay but public sector workers still feeling the squeeze

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months August to October 2014.

These latest figures at last point toward the kind of jobs recovery most likely to begin to put some oomph into pay as well as employment. The entire 115,000 quarterly net rise in employment (to 30.8 million, 73% of the working age population) is driven by full-time jobs for employees which increased by 174,000, easily offsetting falls of 9,000 in the number of number part-time employees and of 29,000 in the number of people self-employed. Unemployment fell by 63,000 (to 1.96 million) in the quarter on the Labour Force Survey measure and by 26,900 in November when measured by the count of claimants of Jobseeker's Allowance. Long term unemployment (i.e. people jobless and seeking work for more than a year) dropped by 40,000 to 684,000, though by comparison the fall in youth unemployment (16-24 year olds) of just 2,000 to 754,000 is disappointing. Nonetheless the overall good news looks set to continue with the level of job vacancies rising by 10,000 to 690,000, just 6,000 short of the pre-recession peak. This means that there are now 2.8 unemployed people per job vacancy, down from 4.4 this time last year and 5.8 two years ago.

Longer hours jobs combined with falling unemployment has boosted the annual rate of growth of average weekly earnings (excluding bonuses) to 1.6%, higher than the comparable 1.3% CPI inflation rate for the period covered by the latest pay data. The increase in average weekly earnings is relatively strong in the private sector, with average weekly pay rising by 2%, thereby boosting employees’ real pay by 0.7%, though this still modest rate of pay growth remains unlikely to set alarm bells ringing at the Bank of England when it comes to decisions on interest rates. However, there is less seasonal cheer for public sector workers whose numbers fell by a further 7,000 in the latest quarter and whose average earnings are growing at a below inflation rate of just 0.9%. For the latter, the chill wind of austerity is biting as hard as ever.    

Monday, 1 December 2014

Mind your political language

Police constables. Cab drivers. White van men. All have been at the centre of recent controversies surrounding the supposed attitude of the political establishment toward us lesser mortals. Latent condescension has burst out in the form of dismissive language or imagery used in the heat of the moment. Maybe this is because so many of our clucking politicos spend too much time cooped-up in Westminster (yes Ms Mordaunt, we can all resort to fowl based metaphor). Yet when it comes to the language of politics I’m less concerned about the occasional harsh word than the constant use of meaningless phrases that treat us all like idiots.

Top of the list in the next few days, with the Chancellor of the Exchequer due to deliver his Autumn Statement on Wednesday, will be ‘long-term economic plan’. Until fairly recently ‘Plan’ barely featured in British political rhetoric, the soviet era overtones derided by the right and avoided by centre-left social democrats. But Conservative politicians in particular have rehabilitated the word, applying it to almost everything, especially economic policy. Presumably focus groups have been found to like the idea that government has some stated purpose and direction. The trouble, however, is that a while a meaningful plan ought to be clearly articulated at the outset and pursued according to a timetable of deliverable measured objectives, ‘plans’ are nowadays rarely set out in this way.

For example, George Osborne refers to the governments/Conservative’s ‘long-run economic plan’ as though everybody knows what it is and how it is supposed to work. The inference is that a clear course was set in 2010, that evident progress has been made in pursing it, and that changing the plan would be harmful to the economy. The Chancellor has been very successful in establishing this idea in the public mind-set. Indeed, most political commentators rarely question the premise. But there is no long-term economic plan. Mr Osborne has, and is fully entitled to pursue, a series of policy objectives designed to advance his party’s ideological vision but in no sense are these being benchmarked against or delivered according to anything that deserves to be called a plan. As a result, and the ideal convenience for a politician, whatever appears to be going well in the economy is attributed to the plan, while whatever fails is either ignored or attributed to some unexpected event.

Ask for a detailed statement of the long-term economic plan from 2010 and you won’t get one – leastways nothing that would resemble a serious organisational business plan. The closest one gets is the fiscal deficit reduction plan. This was clearly set out in June 2010 with an expected timetable of progress but subsequently altered so as to extend the timetable, which now also looks unlikely to be achieved. Insofar as this is the core of the ‘long-term economic plan’ it thus represents a changing plan that is proving very long-term in being delivered.

The Chancellor can of course look to the economy more generally rather than simply to the public finances, with the return of strong economic growth in the past 18 months and rapidly falling unemployment presented as evidence of the success of his plan. However, while like any Chancellor in his position, Mr Osborne understandably seeks to take a political advantage from this there is little solid evidence that the welcome recovery and jobs outcome has anything to do with a plan implemented since 2010.

The rhetorical hype surrounding the Chancellor’s first Budget almost five years ago implied that getting to grip with the public finances would provide an almost immediate stimulus to economic growth of a kind more balanced toward exports and business investment than household consumption. If Mr Osborne’s 2010 plan envisioned two years of flat economic growth followed by a still mainly consumer-led recovery without improvement in net exports, he didn’t tell us at the time.

As for the jobs boom, this has been most welcome but again not obviously attributable to any long-term economic plan. The Chancellor has benefitted from the fruits of flexible labour market policies implemented by successive governments, Conservative and Labour, since the 1980s. These have turned the UK economy into a mass job creating machine that ensures low productivity workers are priced into work rather than remain long-term unemployed. But what Mr Osborne has failed to do is buttress this kind of flexibility with measures to give a quick boost to productivity and real wage growth. If the Chancellor claims his plan is responsible for the sharp fall in unemployment, which is questionable, he should also tell us if real wage stagnation was also part of the plan and when and why as a consequence of the plan it will start to improve.

The ‘long-term economic plan’ will echo beyond the Autumn Statement through to the Budget and General Election. Doubtless it will be joined by equally simplistic political rhetoric surrounding ‘the cost of living crisis’ and ‘getting tough on immigration.’ I appreciate that such has been the stuff of political discourse since people first started to climb the greasy pole and thus that things will probably never change. But it’s nonetheless important that we take time to shout out that the Emperor hath no clothes, lest the bad language of politics ultimately drown out the voices of reason.                   

Tuesday, 25 November 2014

Six years of ‘mass underemployment’ takes gloss off UK’s jobs miracle

The Office for National Statistics (ONS) has just published updated figures from the Labour Force Survey (LFS) on the number of UK workers who are underemployed and want to work more hours and the number overemployed who want to work fewer hours for less pay.   

As expected the number of underemployed workers – those who want to work more hours - fell by 116,000 in the year to Q2 2014 but the figure remains staggeringly high at close to 3 million (2.975 million, 9.9% of people in employment). On average each underemployed worker would like to work an extra 11.3 hours per week, though the desire for longer hours is far greater for part-time workers (22% of whom are underemployed) than for full-timers (whose underemployment rate is 5.4%). This in turn is the major reason why women, who are more likely to work part-time, have a higher underemployment rate (around 11%) than men (around 9%). Self-employed people also have a slightly higher underemployment rate (10.1%) than employees (9.4%). Perhaps unsurprisingly the incidence of underemployment is higher for workers in lower paid than higher paid occupations, since the low paid need longer hours to earn a decent weekly wage, and for younger people (around 1 in 5 16-24 year olds are underemployed).       

At the other end of the desire for work spectrum 2.9 million workers would be prepared to cut their hours for less pay (an average overemployment rate of 9.7%, which is roughly similar for both employees and the self-employed)). On average the overemployed would like to work 11.2 fewer hours but in this case its full-timers (with an overemployment rate of 11.4%) rather than part-timers (5.2%) who want to work less, with overemployment rates highest for professional and managerial workers (at around 13%).

The ONS notes that the underemployment rate has been higher than the overemployment rate since 2009 and thus concludes: “this means that there are more hours being desired by workers than hours workers want to work less. Therefore over the years following the recession there has been an increase in slack in the labour market for those in employment, but this has started to decrease since the beginning of 2013.

Despite the recent improvement, however, 2014 is nonetheless the sixth successive year in which the underemployment rate has been at 9.5% or above. Such a prolonged period of mass underemployment demonstrates the extent to which the very good headline employment and unemployment figures of recent years mask a substantial underlying shortage of work, the persistence of which takes some gloss off the UK’s supposed ‘jobs miracle’.

Unemployment didn’t reach the levels feared at the start of the financial crisis but the degree of subsequent pain inflicted on the labour market has been as severe as expected, it’s simply that the pain has been felt differently than in previous recessions. And with almost 3 million people underemployed alongside still almost 2 million unemployed the pain of work shortage and associated pay weakness is likely to continue well into 2015.

Wednesday, 19 November 2014

Official data confirm big real pay squeeze in year to April 2014, but high earners, women and part-timers are squeezed less hard while ‘job stayers’ in continuous employment a enjoy real pay rise

The Office for National Statistics has just published the provisional findings of the 2014 Annual Survey of Hours and Earnings (ASHE).   

While the latest ASHE findings confirm that the big squeeze on real pay continued between spring 2013 and 2014 the detailed figures show relative winners and losers, with employees who remained in continuous employment over the year enjoying a real pay increase and women seeing a narrowing in the gender pay gap.

Growth in median weekly earnings of 0.6% (to £417.90) for all employees (full-time and part-time) is lower than the corresponding figure of 0.8% pay growth indicated by the ONS’ average weekly earnings statistics and adjusted for consumer price inflation represents an annual reduction in real pay of 1.1%. The median annual pay increase for full-timers (0.1%, to £518 per week, i.e. a reduction in real pay of 1.6%) is lower than at any time since comparable records began in 1997 and well below the increase for part-timers (0.6%, to £161.10 per week). However, the underlying pay situation looks better when one strips out the effect of changes in the mix of employment over the course of the year and focuses solely on the majority of employees who have remained in the same job for at least one year. These ‘job stayers’ enjoyed an annual median pay increase of 4.1%, providing a real terms pay rise of 2.4%.

Full-time women employees saw a bigger pay increase (0.6%, to £461.90 per week) than male full-timers (0.3%, to £557.80 per week), though male part-time employees (with an increase of 1.4% to £151.40) did slightly better than women (1.3% to £166.10). This helped the median gender pay gap to narrow from 10% to 9.4%, the smallest gap between male and female pay since 1997.

There was a slight increase in pay inequality, the weekly pay of the top 10% of earners increasing by more than that of both median earners and the bottom 10% of earners. For full-time employees the top 10% of earners saw pay growth of 0.4% (to £1,024.40 per week) compared with just 0.1% for the bottom 10% (to £287.90 per week). The discrepancy was even larger for part-time employees where the increase for the top 10% of earners (1.2%, to £397 per week) easily outstripped that for the bottom 10% (0.2%, to £50 per week).

Overall, the annual pay snapshot at one level provides a familiar picture of a UK workforce still feeling the squeeze and continuing to become more unequal in terms of pay, but also presents a challenge to some well-worn narratives by showing that ‘job stayers’ are faring relatively while women are making some, albeit slow, progress toward closing the pay gap with men. 

Wednesday, 12 November 2014

Bank of England signals return to 2% real wage growth next year as more jobs, falling unemployment and vacancies close to pre-recession peak give a boost to pay

The Office for National Statistics (ONS) this morning released the latest set of UK labour market data, mostly covering the three months July to September 2014, while the Bank of England has also published its latest quarterly Inflation Report.

This is the most encouraging set of labour market figures for several months, combining a return to strong employment growth (up 112,000 in the quarter to 30.79 million) with a sharp fall in unemployment (down 115,000 to 1.96 million) and average weekly earnings growth of 1.3% (excluding bonuses), just outpacing the corresponding 1.2% consumer price inflation rate. The count of unemployed people claiming Jobseekers Allowance fell by just over 20,000 in October to 931,700.

On the face of things both the employment rate (73.0%) and the unemployment rate (6.0%) are unchanged from the figures published last month. However, this reflects the 3 month rolling comparison of quarterly estimates from the Labour Force Survey which means change in the latest set of figures for July to September is benchmarked against April to June rather than compared month by month. On the rolling comparison, the employment rate increased by 0.2 percentage points in the latest quarter while the unemployment rate fell by 0.3 percentage points.    

Most significant of all the level of job vacancies (687,000) is now only 9,000 shy of the pre-recession peak, the number of unemployed people per vacancy falling to 2.9. This suggests a tighter jobs market and thus a return to sustained if modest real wage growth in the coming months, though the main beneficiaries will be skilled workers for whom demand is rising faster than supply rather than people in the lower half of the jobs league who will continue to feel the big squeeze. Consequently, higher real wage growth on the average weekly earnings measure may not show up in measures of median earnings.

The prospect of an improved average outlook for pay was reflected by Bank of England Governor Mark Carney in his opening remarks at the Inflation Report press conference. Mr Carney pointed to “encouraging signs in the labour market”, with the Bank now expecting annual real wage growth of around 2% by the end of 2015 as a result of nominal pay growth rising to around 3% against a backdrop of a (well below target) rate of consumer price inflation of around 1% (which also reduces the odds on an early rise in the base interest rate). The boost to nominal pay growth, the Bank reckons, will be due to a combination of unemployment falling further toward the pre-recession rate of just over 5% and a recovery in growth in labour productivity.   

Asked whether this marked the end of the historically long real wage squeeze the Governor, perhaps wisely, commented that “one swallow doesn’t make a summer” and that current economic momentum will have to be sustained.  This is significant given that Mr Carney began the press confidence with the ominous remark “the spectre of economic stagnation” is evident in continental Europe. This explains why the Bank has made a slight downward adjustment to its forecasts for both UK economic growth and inflation. Despite this, however, the Bank reckons the UK economy will grow at an above trend rate in 2014 (3.5%), 2015 (2.9%) and 2016 (2.6%), supported by employment and pay growth, increased business investment and improving consumer confidence. Let’s hope Mr Carney and his colleagues are proved right.  

Monday, 20 October 2014

No wonder free movement of EU labour is a hot topic for UK

I would not describe myself as a Eurosceptic and also think immigration is generally positive for the British economy. However, a decade ago when a group of central and eastern European countries joined the EU I questioned the wisdom of immediately allowing citizens of those countries to enter the UK labour market.

My concern was that free movement of labour within the EU, though correct in principle, had the potential to cause practical difficulties given the very substantial income disparity between existing member states and these former communist bloc newcomers. The sensible course, in my opinion, would have been for the UK to follow the example of most other existing member states at the time and take advantage of scope for transitional restrictions on migration from the new member states while the latter integrated into the EU economy. Instead, the UK adopted an open door policy, resulting in a flow of eastern Europeans across our borders that has proved so large as to alter the complexion of many local communities and, in the process, not only propelled immigration to the top of the political agenda but also placed the issue of the free movement of labour at the centre of debate over the UK’s membership of the EU.

Politics aside, most economists contend that my concern has proved misplaced. My worry was that in an economy oversupplied with less skilled labour, an inflow of labour from low income countries would reduce the employment of less skilled British born people and/or lower their pay levels. As things turned out I was wrong about the employment effect of immigration, mainly because a decade ago I hadn’t quite appreciated how ultra-flexible the UK’s uber deregulated labour market has become. Nowadays it seems as though you can pump as much labour supply into the market as you like and still create lots of low productivity jobs because pay takes the strain and prices people into work, albeit the impact of migration on pay is generally found to be small, in part because the national minimum wage provides a floor to pay at the bottom of the market.

The national minimum wage has proved a policy Godsend in this respect since, despite protestations to the contrary, it’s pretty clear that UK employers have been hiring EU migrants primarily to cut wage costs. This is apparent from a recent study by the Chartered Institute of Personnel and Development (CIPD).  Oddly, while the CIPD is at pains to stress that ‘what the vast majority of employers are not doing is hiring migrants to lower the wage bill’ its key headline is that employers have been turning to EU migrants to fill entry level job vacancies, particularly for lower skilled jobs, because they are more skilled and ‘a bit older and have more work experience’. If hiring migrants with skills and experience into low skilled entry level jobs at low pay isn’t about cutting the wage bill for a given value of output I’d sure as hell like to know what it is.

It’s obvious that bosses, along with migrants themselves, benefit most from immigration. British born people benefit as consumers too, assuming the lower cost of employing migrants feeds through to product and service prices rather than adds to profit. But for British born workers the blessing is mixed, with immigration one of several supply side factors now keeping the lid on growth in pay with millions of people, British born and migrants alike, employed in jobs that pay less than a living wage. No wonder that immigration is a hot political topic. No wonder that free movement of labour within the EU is a matter of debate.  

Wednesday, 15 October 2014

Rise in number of economically inactive people enables unemployment to fall below 2 million despite slower pace of job creation as self-employment records sharp quarterly fall

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months June to August 2014.

The fall in unemployment to below 2 million (1.97 million or 6% of the workforce, the lowest rate since late 2008) will grab the headlines but the latest figures suggest an underlying change in the pattern of the labour market recovery. The pace of net employment creation (up just 46,000 in the latest quarter to a total of 30.76 million, with a working age employment rate of 73%) has slowed markedly compared with earlier in the year, due in large part to a sharp quarterly net fall of 76,000 in self-employment. As for employees, continued growth of 107,000 in the quarter was split roughly between full-timers and part-timers (causing another slight fall, to 1.35 million, in the number of people working part-time because unable to find a full-time job). However, unemployment has nonetheless continued to fall sharply because slower employment growth was dwarfed by a big quarterly rise of 113,000 in the number of economically inactive people, almost half of which is accounted for by a rise in the student population. The fact that the latest fall in unemployment has been driven by rising inactivity rather than employment creation also helps explain why the associated fall of 18,600 between August and September in the number of people unemployed and claiming job seekers allowance (JSA) is also much lower than in recent months.

There is slightly better news on the rate of growth in average weekly earnings (unchanged at 0.7% including bonuses and up to 0.9% when bonuses are excluded) though this is still much lower than the accompanying rate of price inflation and there is little sign of an imminent pay surge to end the real wage squeeze.