Wednesday, 16 April 2014

All eyes on the UK pay figures but it’s the jobs figures that are truly remarkable

The Office for National Statistics (ONS) has released the latest set of UK labour market data, mostly covering the three months December 2013 to February 2014.

All eyes today are on the latest average weekly earnings figures which show that the UK’s prolonged real pay squeeze is over, with average total nominal pay growth of 1.7% in February 2014 matching that month’s CPI inflation rate. Bonus pay accounts for the end of the squeeze – regular pay rises are still running at a sub-inflation rate of 1.4% – although workers in the private sector on average enjoyed a small real wage increase in February whether one looks at nominal growth in pay including bonus payments (which increased by 2%) or excluding bonus payments (which increased by 1.8%). Either way, with pay set to keep rising against a backdrop of modest price inflation, which the ONS told us yesterday fell to 1.6% on the CPI measure in March,  average real weekly earnings are now on the up again for the first time since 2010 even though still well below the pre-recession level.

However, while the pay figures grab our attention one should not overlook how truly remarkable the latest jobs figures are. Not only is employment up by 239,000 in the latest quarter on the Labour Force Survey (LFS) measure, helping to cut the unemployment rate to 6.9% (2.24 million), but the ONS’s quarterly Workforce Jobs (WJ) survey data show that the UK economy added almost a million (993,000) net new jobs in 2013 as a whole, almost half a million in the final quarter alone.

Note that the LFS is a household survey, which provides us with an estimate of the number of people in employment, while the WJ is mainly a survey of employers asking them how many jobs they provide. The LFS estimates that there are 30.3 million people in employment, the WJ that there are 32.7 million jobs (the estimates differ primarily because of differences in coverage and methodology but in part also because some people in employment do more than one job). Both measures tend to move in line over time, although they sometimes suggest different rates of employment growth. The ONS prefers to use the LFS to provide its headline employment measure – the LFS providing more timely estimates and forming part of an overall framework of labour market statistics which also provides estimates of unemployment and economic inactivity – but prefers the WJ to estimate the distribution of jobs across industrial sectors because respondents to the LFS might not always be fully aware of which sector they work in.   

Either way the latest WJ figures indicate annual UK job growth of 3.1% in the year to the final quarter of 2013, making the latter one of the best years for UK jobs in decades, the kind of performance one might expect during an economic boom rather than a gradual economic recovery. While it’s clear that many of these net new jobs are linked to the recovery in the housing market – construction added 92,000 jobs in 2013 (an increase of 4.5%), real estate activity 83,000 (an increase of 16.3%) – jobs are being added across the economy, including in manufacturing which added 45,000 jobs (an increase on 1.8%). Moreover, according to the WJ well over two-thirds (707,000) of these net new jobs are for employees, so the ‘jobs boom’ can’t be explained solely by the big surge in self-employment recorded by the LFS in recent years.

Given all this, along with good news of rising job vacancies (up by more than 100,000 in the year to the first quarter of 2014), falling youth unemployment (down 38,000 in the latest quarter), fewer people claiming Jobseeker’s Allowance (down 30,400 in March) and fewer part-timers unable to find a full-time job (still high at 1.42 million but down 17,000 in the latest quarter), it’s clear that the UK labour market is now in a far healthier state than 12 months ago. What remains to be seen now is what happens to this remarkably strong jobs growth as real pay growth increases and employers set their sights on increasing productivity to counter rising labour costs. Watch this space.