Wednesday, 16 December 2015

It’s ‘payja vu’ in the UK labour market

This is one of those days when the eyes of most economic commentators will be fixed on what the United States Federal Reserve decides to do to the interest rate rather than the latest UK job market figures. The Office for National Statistics (ONS) data, mostly covering the three months August to October 2015, nonetheless provide another twist in the tale of the labour market trend on this side of the Atlantic.

After a brief hiatus in the spring, the UK jobs boom is clearly back in full swing with (according to the household Labour Force Survey) 207,000 (+0.7%) more people in work compared with the previous quarter and 505,000 (+1.6%) more than a year earlier. On an annual basis employment of employees increased in percentage terms by 1.9%, somewhat more than self-employment 1.6%. Within these totals, in percentage terms part-time employment (+2%) increased by more than full-time employment (1.5%). At the sector level, construction recorded by far the largest annual increase in jobs (+111,000 or 5.3%) in a big employment sector.

The ONS’s alternative quarterly Workforce Jobs series, mostly based on a survey of employers, offers a slightly different but broadly consistent picture of job growth of 1.2% in the year to September 2015. The ONS also finds that in the year to September private sector employment increased by 2.2% while public sector employment fell by 1.1%.  

The rise in LFS employment takes the total number in work to 31.30 million and the working age employment rate to 73.9%. Both the latter are new records but less noteworthy this month than two other landmark figures. First, total hours worked each week in the economy have topped 1 billion for the first time ever. Second, unemployment has at last returned to the pre-recession rate of 5.2%. Yet after a period of much better news on pay, the rate of average regular weekly wage growth (i.e. excluding bonuses) for employees has fallen sharply to just 2% in the year to October, down from 2.4% in the year to September. The slowdown is particularly marked in the private sector (down from 2.8% to 2.3%), the rate in the public sector actually rising slightly (up from 1.2% to 1.3%). The ONS notes that the drop in the overall figure reflects a high single month growth rate for July of 2.9% falling out of the latest three month average and being replaced by a much lower single month growth rate of 1.7% for October.  

There is thus a palpable sense of what a punster might call ‘payja vu’ in the UK labour market at present, a reminder of the initial phase of the economic recovery characterized by a jobs boom alongside weak productivity and pay growth. What’s most surprising it that for all the talk of mounting skills shortages employers in most sectors (with the exception of construction where very strong job growth has pushed wage growth well above 6%) appear perfectly capable of hiring at will without having to hike pay rates. This will please jobseekers and Bank of England interest rate setters even though it means employees are now enjoying real wage gains only because almost zero consumer price inflation is nowhere near the Monetary Policy Committee’s target rate of 2%.