Wednesday 14 May 2014

Job growth fuelled by continued surge in self-employed takes the steam out of pay growth for UK employees

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

The number of people in work in the UK continues to rise at a remarkable rate (up 283000 or 0.9%, to 30.43 million, in the first quarter of the year). This has helped to cut total unemployment by 133,000 to 2.21 million (6.8%) against a backdrop of rising economic activity (the number of economically inactive people of working age falling by a further 85,000 to 8.84million).

All the available wider quarterly headline employment, unemployment and underemployment figures show signs of improvement. Full-time employment accounts for more than 60% of the total rise in employment, while the number of part-timers who want a full time job, while still very high at 1.42 million, has fallen slightly by 7,000. Long-term unemployment has fallen by 33,000 (to 813,000), youth unemployment has fallen by 48,000 (to 868,000) and the JSA claimant count has fallen by 25,100 (in April 2014, to 1.16 million). Employment in the first quarter increased in every nation and region of the UK except Wales (where the number in work dropped by 18,000) and unemployment fell in every nation and region except the North East (where the number unemployed and looking for work increased by 5,000).

Once again, however, the self-employed account for the vast majority (183,000, almost exactly two-thirds) of total employment growth in the first quarter of this year and 52% of the 722,000 increase in the year to the first quarter. The precise reasons for this continuing surge in self-employment at the present time remain a subject of debate. But either way a jobs boom driven by the fast swelling ranks of the self-employed is not being matched by a corresponding boost to employee pay, the recent improvement in which appears for the time being to have run out of steam.  

While the latest Average Weekly Earnings figures show the rate of growth of total pay unchanged at 1.7% - a whisker above the CPI inflation rate of 1.6% - growth in regular pay (excluding bonuses) has dropped from 1.4% to 1.3%, with the easing of regular pay growth more marked in the private sector.

The good news from the latest jobs and pay figures is that they suggest UK unemployment can probably fall much further and much faster without triggering wage inflation. No wonder then that the Governor of the Bank of England, Mark Carney, noted this morning in his opening remarks to the Bank’s quarterly Inflation Report press conference that “significant slack remains in the labour market” and that the “unemployment rate of 6.8% remains significantly above our (the Bank’s) estimate of its current equilibrium.” Consequently, Mr Carney stated, the Bank reckons that the labour market currently accounts for the bulk of slack in the UK economy as a whole at present (estimated at 1-1.5% of GDP). Although, as Mr Carney also notes, there is considerable uncertainty around this estimate of slack, the Bank’s current estimate does not therefore suggest a near term interest rate rise. The bad news is that ‘significant labour market slack’ also means there is probably a very long way to go before workers notice any significant improvement in their real standard of living.   

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