Fresh jobs and pay figures point to better news on UK labour productivity

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months May to July 2015.

It’s now fairly clear that the UK labour market recovery changed tack in the first half of the year. The previous and prolonged ‘jobs-rich/pay-poor’ trend appears, at least for now, to have gone into reverse. The headline unemployment rate is static at 5.5% when compared with the late winter/early spring quarter while the rate of average regular weekly pay growth for employees has risen further to 2.9%.

The number of people in work increased by 42,000 in the quarter (up 0.1% to 31.095 million), much slower than the quarterly growth rates seen for most of the period since 2012, albeit enough to lift the employment rate from 73.4% to 73.5%. But with the working age economic inactivity rate also dropping slightly (down from 22.2% to 22.1%) this modest improvement in employment was unable to lower the headline unemployment rate (the level of unemployment indeed rising by 10,000 to 1.823 million).

These latter figures are of course drawn from the household Labour Force Survey (LFS). The ONS’ alternative, largely employer survey based Workforce Jobs (WJ) data series (published each calendar quarter) complicates the picture somewhat by indicating a much stronger rate of net job creation in the second quarter (to June). The total number of Workforce Jobs is found to have increased by 102,000 in the quarter (up 0.3%), almost 90% of the increase accounted for by jobs for employees.

Historically, movements in the LFS and WJ series do diverge at times, which is not surprising since they are obtained from different constituent respondents and cover slightly different time periods. Generally, however, these series tend to offer a consistent view of the underlying employment trend when viewed over a number of quarters and years. On the face of things the latest divergence might be explained by a combination of a relatively large quarterly increase in part-time jobs but with some of these being taken by people who already have another job, either as an employee or self-employed. But while close examination of the latest LFS data do indeed show a relatively strong quarterly rise in part-time working (up 0.6%, the number of people working full-time unchanged in percentage terms) the number of people with second jobs actually fell quite sharply (by 0.2%).

Putting aside such statistical puzzles and looking solely at the picture painted by the LFS and average earnings data, the good news is that the latest employment/unemployment/pay combo provides further evidence that the much needed improvement in labour productivity may at last be underway. This will be welcomed by employers, wage earners and economic pundits, not to mention interest rate setters at the Bank of England. But the news is not so good for jobseekers because it now looks as though it will take a little longer than previously expected for unemployment to fall back to the pre-recession rate (of around 5.2%).

Public sector workers will also be feeling less than chipper. Their average weekly pay is rising at a rate of 1.3%, almost three times slower than the average rate of pay growth in the private sector, while the first half of the year saw an underlying fall (adjusting for statistical reclassification effects) of 22,000 in the number of people employed in the public sector.