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.