This morning has brought us up to date with the state of play in the UK labour market and we can start with the way that an important area will be presented at the Bank of England morning meeting.Let us start with the introduction from the duty research student.
Growth in average total pay (including bonuses) was 7.0%, and growth in regular pay (excluding bonuses) was 4.2% among employees in January to March 2022.
He or she may even think that pointing out this from The Precious! The Precious is a good idea.
the finance and business services sector showed the largest growth rate (10.7%), partly because of strong bonus payments.
The problem comes if we note how Governor Andrew Bailey seems determined to dig a hole for himself on this subject. He was interviewed yesterday by the Treasury Select Committee.
Bank of England governor Andrew Bailey repeats his call for workers to “reflect carefully” about taking a pay rise amid concerns it could fuel inflation but says “everyone must make their own judgement”. ( @PippaCrerar)
That was reinforced by this from CAPX.
Bank of England governor Andrew Bailey repeats his call for workers to “reflect carefully” about taking a pay rise amid concerns it could fuel inflation but says “everyone must make their own judgement”.
Thus as you can see our poor research student will be wondering why the Governor is frowning at what they think will be news which is welcome? If we switch now to analysing the numbers we see that there is more to it and that sadly the official release is very misleading by reporting this.
In real terms (adjusted for inflation) in January to March 2022, growth in total pay was 1.4% and regular pay fell on the year at negative 1.2%.
It is simply not true that real wages are rising in any form and they are only able to claim this due to the use of an inflation measure that is really poor called CPIH which is giving much the lowest measure of inflation. Even it will be above wage growth when the April numbers are announced but if we stick to comparisons at the time the more accurate RPI was still around 2% higher. This means that real wages continued to fall.
Bonuses
These were strong and were very significant in March.
Average weekly earnings were estimated at £615 for total pay, and £558 for regular pay in March 2022.
They were driven by the area over which you might think Governor Bailey has the most influence.
Bonus payments in March 2022 were strong and we have seen this pattern since August 2021. The largest bonus payments are in the finance and business services sector, but are high across several sectors for March 2022
The bonus pay levels were £45 weekly and I will add according to the Office for National Statistics as the numbers do not add up. They were pulled higher by the £109 per week payment in the finance sector and were a private-sector thing because public-sector payments were a mere £2 a week. Manufacturing bonuses also rose strongly in March ( by £10 weekly) but at £35 were much lower than in finance.
We can move on from the wages numbers with the view that growth is very strong but the element that depends on finance bonuses will not persist. It is hard to know where to start with the issue of higher wages being as close to Governor Bailey’s watch as it could be! But more seriously it means that once the much higher inflation figures tomorrow are factored in and wage growth loses the bonus push then real wages will be falling substantially. I continue my view that we are seeing a phase where the fall is of the order of 3% per annum.
Employment
There is a link here between employment and the fall in real wages I think and here I depart from some of the arguments about “overheating”. Let me explain with this.
The UK employment rate was estimated at 75.7%, 0.1 percentage points higher than the previous three-month period and 0.9 percentage points lower than before the coronavirus pandemic (December 2019 to February 2020).
As you can see we have recovered pretty quickly from the various effects of the pandemic but employment has yet to regain previous levels. As output has this means that a previous worry (productivity) has improved which may help wages but we do have an issue here.
The number of self-employed workers also fell during the pandemic and has remained low, although they have increased during the latest three-month period
In total some 800,000 self-employed jobs have gone. As ever there is more than one factor at play because the IR35 changes will have been in play here as well so some will have shifted to employment because of that. But the overall position is that we have approximately half a million fewer jobs than pre pandemic.
We can look at this another way via hours worked.
Compared with the previous three-month period, total actual weekly hours worked increased by 14.8 million hours to 1.04 billion hours in January to March 2022. However, this is still 10.7 million below pre-coronavirus pandemic levels (December 2019 to February 2020).
As you can see from this perspective the picture looks better in that we are close to being back to where we were. Although I recall first pointing that out last autumn and it has been a slow grind. But on the positive side it shows an improvement in implied productivity.
Overheating?
The basic version of this comes here.
The UK unemployment rate was estimated at 3.7%, 0.3 percentage points lower than the previous three-month period, and 0.2 percentage points below pre-coronavirus pandemic levels.
There are different ways of looking at this but not only is it better than pre pandemic levels it is better that what the Bank of England considers to be equilibrium unemployment and for those who remember it better than the natural rate of unemployment. Indeed if you want the full set it is better than what some considered to be full employment.
Next comes the evidence from vacancies.
The number of job vacancies in February to April 2022 rose to a new record of 1,295,000; an increase of 33,700 from the previous quarter and an increase of 499,300 from the pre-coronavirus (COVID-19) pandemic level in January to March 2020.
As you can see employers have a demand for workers in spite of the fact that employment has improved and hours worked have been recovering. The growth rate is slowing but that is hardly a surprise at these levels.
In February to April 2022 quarterly vacancy growth fell to 2.7% from 5.8% last quarter.
The sectoral position is as shown below.
The rate of quarterly growth varies across industry sectors, with the fastest rates of quarterly growth seen in arts, entertainment and recreation at 33.0% and construction at 28.1%, while transport and storage displayed the largest negative growth or 8.7%.
The Bank of England suggested so according to the Financial Times.
The governor acknowledged that the MPC had changed its view about the labour market and now feels it is “very tight”, something it did not understand until well after the government’s furlough scheme ended.
Indeed they had an interesting perspective on where many of the workers may now be.
Bailey also blamed a large rise in long-term sickness, which has reduced the workforce by around 400,000 people. “The scale and persistence of the fall [in the workforce] has been very unusual,” he said.
So we have a consequence of what has been called Long Covid.
Comment
The labour market statistics have been put under a lot of strain by the pandemic. I have pointed out before that I think the unemployment rate is in simple terms broken. Or if you prefer facing a different reality now with the labour force having changed due to people leaving it and a significant factor looks to be long-term sickness.This is a factor in play well beyond the UK and reminds me of the time we were looking at the participation rate in the United States where a large number of people effectively disappeared from the labour market.
The average earnings figures here are the real issue though I think as we seem set for a sustained period of falls in real wages. The bonus bounce will fade and tomorrow the impact of the Ofgem price cap will push inflation considerably higher. It is very difficult to reconcile that with claims that the economy is overheating in the traditional sense. To which we can add the words of the Governor of the Bank of England who seems to want to make everyone worse off via reducing real wages. In essence we return to a point I have made since the pandemic began if you pump up the monetary system and slash interest-rates you end up with inflation as a consequence. They take the credit for the gains but then try to run away from the consequences.
Putting it another way real wages have been in a depression since the credit crunch or are our version of the Japanese lost decade.