The UK has an unemployment rate of 9% and no real wage growth

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by Shaun Richards

Today reminds me of the article I wrote on the second of April where I was worried about the spectre of mass unemployment. It turns out that I was right on two counts. We have plunged into a type of economic depression but as I warned then we have had a fair bit of trouble with the way it is measured.

However the numbers will need some interpreting because it looks as though those who are “furloughed” will continue to be counted as in employment. Personally I think it would be better if a new category was created.

Sadly the International Labor Organisation has continued with a standard that has turned out to be about as useful as a chocolate teapot.Let me explain with reference to the latest UK figures from this morning.

The UK unemployment rate, in the three months to October 2020, was estimated at 4.9%, 1.2 percentage points higher than a year earlier and 0.7 percentage points higher than the previous quarter……….Estimates for August to October 2020 show an estimated 1.69 million people were unemployed, up 411,000 on the same period the previous year and up 241,000 on the quarter.

In the circumstances of a 7.9% decline in GDP or economic activity in the pandemic period these would be really good numbers but they are sadly too good to be true for the reason below.

Prior to the coronavirus (COVID-19) pandemic there was on average 2 to 2.5 million people temporarily away from work. Experimental estimates based on returns for individual weeks show that the number of people temporarily away from work rose to around 7.9 million people in April 2020 but has fallen to around 3.7 million people in October 2020.

That is the impact of the furlough scheme in the main and if we quantify that we see that around 1.5 million people are in a type of hidden unemployment so putting them back in leaves us with 3.2 million unemployed or a near doubling of the numbers. On that road the unemployment rate looks to be a bit over 9%.

There is an irony in today’s numbers because in the television series Yes Prime Minister Jim Hacker tells us that nobody believes the unemployment numbers. He was referring to a forerunner ( this was 1983) of what we now call the claimant count which seems to be performing better than the official unemployment numbers.

The Claimant Count increased slightly in November 2020 to 2.7 million. This represents a monthly increase of 2.5% and an increase of 114.8%, or 1.4 million, since March 2020.

Oh and this exchange in another episode may raise a wry smile.

Hacker: The school leaving age was raised to 16 so that they could learn more, and they’re learning less!

Sir Humphrey: We didn’t raise it to enable them to learn more! We raised it to keep teenagers off the job market and hold down the unemployment figures.

Hours Worked

Fortunately there is another measure which is giving us a lot better guide to the state of play in the UK labour market. Let us start with the good part.

Between May to July 2020 and August to October 2020, total actual weekly hours worked in the UK saw a record increase of 104.9 million, or 12.3%, to 960.0 million hours.

Average actual weekly hours worked saw a record increase of 3.3 hours on the quarter to 29.5 hours.

As you can see there has been quite an improvement and we may have some form of a V-Shaped recovery eventually.

In terms of theoretical economics this is called labour hoarding where we have responded by having fewer hours worked rather than people being made explicitly unemployed and losing their job. If we were to look back a decade or more this was in fact considered a good outcome as it was considered that the German system which used this was better than ours in the UK which used it less.

Returning to the numbers in spite of the sort of half V we are still in a situation where id we compare the peak of 1,052,196 weekly hours to the most recent number of 960,020 we see a fall which is still of the order of 8.8%. Another way of looking at this is that we have gone back to the summer of 2013 or are slightly better than what we were pre credit crunch so in 2008.


These provide some help in terms of direction of travel.

The number of people reporting redundancy in the three months prior to interview increased in August to October 2020 by a record 251,000 on the year, and a record 217,000 on the quarter, to a record high of 370,000

However there is a catch in that the total numbers reported will have been reduced by the furlough scheme ( a good thing overall). But in terms of these numbers there will have been a boost from the expected end of the furlough scheme which was then extended.


I think before we even look at these numbers we need to put up a proceed with caution sign or if we were the Starship Enterprise we would be on yellow alert.

Growth in average total pay (including bonuses) among employees for the three months August to October 2020 increased to 2.7%, and growth in regular pay (excluding bonuses) also increased, to 2.8%.

That does not seem very likely and in fact things get even less likely as we switch to real wages.

Growth in both total pay and regular pay was higher than inflation; in real terms, average pay was 1.9% (total pay) and 2.1% (regular pay) higher than a year ago.

Sadly some will take this at face value and think that we have got right back ti where we started from and put Maxine Nightingale on Spotify.

The rate of total and regular pay growth had stood at 2.9% in December 2019 to February 2020 immediately prior to any impact from the coronavirus (COVID-19) pandemic was seen; it then slowed sharply in April to June 2020 to negative 1.3% for total pay and negative 0.1% for regular pay before some increase between July and October.

The catch is something that has been a problem before in the credit crunch era and I have noted in the US data.

A notable proportion of the growth in average pay is because of a fall in the number and proportion of lower-paid employee jobs; other factors such as a fall in employees entering the labour market have also inflated average pay growth.

Okay so how much? Let us start with compositional changes


It therefore appears that the net impact of recent job losses, when measured in terms of type of job, is to increase the estimate of average pay by approximately 1%.

Then there is this.

This considers tenure of employees who fill the stock of jobs and suggests that a fall in new entrants to the labour market (who are lower paid than average) has contributed to an increase in average pay, with magnitude of approximately 1%.

Shifts within industries account for 0.2%. So we have a total of 2.2% but there may be double counting here. But as a principle we have just removed the real wage growth which is a good thing as the idea that we actually have real wage growth is pretty ridiculous. It is even before we get to the issue of the woeful imputed rent driven inflation number that has been accepted by our statisticians under pressure from HM Treasury.


We find that the labour market figures have quite a few traps for the unwary. The points below are generic ones although the specific numbers refer to the UK. If we start with the quality or price numbers we see that such analysis wipes out any real wage growth and perhaps all wage growth. That seems much more realistic as it fits better with what the Bank of England Agents reported.

Given the uncertain outlook, many companies reported freezing pay, and a large proportion of contacts said they planned to delay or cancel pay settlements this year. Companies in a number of sectors reported introducing temporary pay cuts, though these were mainly at management level.

Switching back to the quantity numbers we see that a reported unemployment rate of 4.9% becomes more like 9% once we allow for the furlough scheme. So it is hours worked which give us a true guide highlighted by the graph above.Also have you noticed how Zero Hours Contracts have shifted off the agenda? Hours worked have got much better but sadly due to the new restrictions are likely to get worse again in November and December. The latter is rather confused for Londoners like me as we have just been restricted more but next week the Christmas loosening starts.

In vaccines we trust…..





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