UK Labour market

British pay hits new peak

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INSECURE “GIG” JOBS ARE STILL ON THE RISE

This month’s numbers on the labour market from the Office for National Statistics represent “a landmark moment for living standards”, says Nye Cominetti. Twelve years since the financial crisis, average pay has finally hit a new peak in real terms. Average weekly regular earnings were £511.60 in the three months to December 2019. The previous peak, adjusting for CPI inflation including owner occupiers’ housing costs, was £511.30, set in August 2007.

That’s clearly good news.  But it’s something of “a bittersweet moment”. It means that, in 12 years, the average pay packet has grown by just 30p.  If instead real pay had continued to grow at its pre-recession trend of 2.1% per year, average weekly pay today would be £141 higher in real terms. That’s an “extraordinary amount of lost ground”. According to the Bank of England, the only comparable pay squeeze in the past 150 years was in the 1920s.

A MIXED RECORD ON JOBS

The jobs picture is similarly mixed. The good news is that employment continues to hit new highs. The employment rate for 16- to 64-year-olds is now 76.5%, reversing the dip seen at the end of last year.  The unemployment rate, at 3.8%, remains at its lowest level in more than four decades.

The bad news is that the number of people on zero-hours contracts is also breaking new records. They total 974,000 in the latest data, amounting to 3% of total employment. This is surprising given the tightness of the labour market – four different measures of the amount of slack all show that there is as little or less slack in the labour market as there was before the crisis. Given this, you might expect workers to “use their bargaining power to secure more standard contracts, given the problems associated with unpredictable hours”.

Self-employment – a far bigger proportion of the workforce than the much-hyped subdivision of the so-called “gig economy” – also reached a record high of 5.03 million – up by about one million since the financial crisis. This is a “further reminder that the rise of atypical work is not just a cyclical effect”, but a structural change in the economy.

We can “cheer the good news and scratch our heads over why it’s taken so long … and resolve to avoid it ever happening again”. But the big picture is that the labour market is both growing and changing – and that that change can bring insecurity for some. To change that, action in the form of labour-market regulation and changes to the tax system will be needed.