News, Politics

Employment Numbers Continue to Bring Good News But Wages are Stagnant

May 17th, 2017
Author: Jeff Taylor

The latest data from the Office for National Statistics (ONS) on the Labour Force Survey (LFS) shows that employment is up, unemployment down and the number of economically inactive people has also fallen.

The estimates show that, between the three months October to December 2016 and the three months January to March 2017, the number of people in work increased by 122,000 to 31.95 million. The figures for January to March 2017 were also 381,000 more than the same period the year before. This puts the employment rate, those in work aged 16 to 64, at 74.8 percent, which is the highest since comparable records began says the ONS.

At 1.54 million, the number of unemployed has fallen by 53,000 over the previous three month period and by 152,000 when compared to January to March 2016. That put the unemployment rate at 4.6 percent, which is down from 5.1 percent a year earlier.

Welder (PD)

The number of those economically inactive (those between 16 and 64 years if age not working and not seeking or available to work) between January and March 2017 was 8.83 million. This is a rate of 21.5 percent, which is a decrease on the 21.8 percent seen in January to March 2016.

Although wages saw nominal rises of 2.4 percent including bonuses and 2.1 percent excluding bonuses over the last year, in real terms (adjusted for inflation) there was a rise for wages including bonuses of 0.1 percent but a fall of 0.2 percent in wages excluding bonuses.

John McDonnell, Labour’s Shadow Chancellor, said:

These figures bring home the Tories’ total failure to improve the living standards of working families.

“Real wages are lower than they were in 2010 and, after seven years of the Tories, they are now falling again.

“The choice at this election couldn’t be clearer: either a Tory party presiding over a crisis in living standards or a Labour government that will build a Britain for the many, not the few.”

Martin Beck, senior economic advisor to the EY ITEM Club, commented:

In quantity terms, the performance of the UK jobs market in the first quarter delivered a wave good news. The number in work rose by 122,000 on the previous three months, lifting the employment rate to a new record high of 74.8%.

“Meanwhile, job vacancies climbed to a new record of 777,000, cutting the number of unemployed people per job vacancy to below two for the first time since the data began. And a fall in unemployment pushed the Labour Force Survey (LFS) jobless rate down to 4.6%, a rate last seen in July 1975.

“But this buoyant performance is still not translating into upward pressure on pay. Headline growth in average weekly earnings picked up slightly to 2.4% in March from 2.3% the previous month. But on the same basis, growth in regular pay slowed to 2.1%, an eight-month low. And with inflation rising, real regular pay fell for the first time since late 2014.

“The positive news is that there still appears to be scope for joblessness to drop further before pay rises threaten higher inflation. But will that slack be absorbed? The squeeze on real pay augurs a slowdown in consumer spending, which in turn risks pushing unemployment up and depressing pay growth. So the latest numbers may be as good as it gets for the labour market for now.

Andrew Sentance, senior economic adviser at PwC, commented:

"Employment growth appears to be picking up again after a slowdown in the second half of last year. The numbers in employment were up by over 120,000 in the first quarter of this year – the biggest quarterly increase since the EU referendum. Construction and private services are the main sectors generating jobs in the UK. However, employment is flatlining in manufacturing and the public sector.

"The vacancy rate also points to a pick-up in the demand for labour. The number of unfilled vacancies has risen to its highest level since the current data series started in 2001.

"The figures on wage growth were more mixed. The annual rate of increase in total pay remains fairly steady at just under 2.5 percent. But pay increases have been quite dependent on bonuses in recent months. The rate of regular pay growth has eased back from 2.7 percent last autumn to 2.1 percent according to the latest figures. And whether we look at total pay or regular pay, neither measure of wage growth is keeping pace with inflation – which is now 2.7 percent.

"These latest figures therefore contain mixed news for future UK economic prospects. The pick-up in employment growth is encouraging. But the fact that wage growth is not keeping up with price inflation does not bode well for consumer spending – which has been a key factor contributing to UK economic growth in recent years."

TUC General Secretary Frances O’Grady said:

Today’s fall in real wages risks tipping working people into another living standards crisis. And that poses a major challenge for whoever forms the next government.

“The big question for every party is – what’s your plan to get Britain’s wages rising again?

“Any party that’s serious about giving Britain a pay rise will have a plan to create well-paid jobs in the towns that need them most. They will have a plan to raise the minimum wage to £10 as soon as possible. And they will have a plan to stop the unfair pay cuts that are making hard-working midwives, firefighters and nurses thousands of pounds worse off.

Maike Currie, investment director for personal investing at Fidelity International, comments:

Today’s UK wage growth figures show total earnings including bonuses at 2.4% for the three months to March 2017.

“With yesterday’s inflation figures showing CPI at 2.7% and expected to rise even further, prices are likely to outpace wage growth, tightening the squeeze on UK households. As each month rolls by we’ll be getting progressively poorer as the wages we are earning struggle to keep up with the prices of the goods and services we consume. Given that consumer spending remains the backbone of the UK economy, this is bad news for economic growth.   

“Many have pointed to wage growth as the ‘missing piece of the puzzle’. While there are more people employed in this country than ever before, the problem is that our wages are increasing at a glacial pace. That’s why we need our savings and investments to work even harder – rising inflation coupled with lower-for-longer interest rates, means savers are losing out in the long term if they’re leaving their money languishing in cash. This matters massively, as workers wait for that elusive pay rise.

“In the current environment, the stock market may provide a viable alternative to keeping your cash under the proverbial mattress and continues to be your best chance of generating a real return. Our calculations show if you had invested £15,000 into the FTSE All Share index five years ago, you would now be left with £23,790. If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £15,122. That’s a difference of over £8,668.”

Alpesh Paleja, CBI Principal Economist, said:

“Rising employment continues to reinforce the importance of the UK’s flexible labour market.

“However, weakening productivity and slower pay growth, coupled with rising inflation, will continue to squeeze real household earnings.

“Therefore maintaining the UK’s reputation as a great place to do business, for example by increasing R&D spend to 3% of GDP by 2025, will help boost the UK’s productivity. This is the only sustainable route to higher wages, and better living standards.”

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