If you are inclined to celebrate and have a few friends over when the UK labour market report is filled with positive news, then, by all means, start icing the champagne. December’s report published by the Office for National Statistics includes the following details:
- Wages continued to rise at their highest level in nearly a decade.
- The number of people working in the UK rose by 79,000 to 32.48 million. That is the highest figure since records began in 1971.
- The unemployment rate was 4.1 per cent, virtually unchanged compared with May to July 2018 and lower than the estimate for a year earlier (4.3 per cent).
Rising Wages: The Missing Part of the Recovery. Until Now.
Wages are growing ahead of the rate of inflation and it is thought that this rise is pay is due to the tight job market. As the Financial Times reports:
“The rise in salaries is also beginning to overcome significant increases in prices. Real regular pay, which takes into account inflation, was up 1.1 per cent in the October period — a level not seen since late 2016.
‘While Brexit uncertainty and political paralysis are having a cooling effect on the wider economy, the labour market is proving more resilient,’ said Stephen Clarke, senior economic analyst at the Resolution Foundation.
‘Britain’s tightening jobs market is delivering stronger pay rises, particularly for workers in ICT (information and communication technology), hospitality, and real estate,’ he said. ‘2019 looks set to be a far better year for pay than this one.’
Real pay growth has, until recently, been the missing part of the UK’s post-crisis recovery. While unemployment fell and employment rose, pay growth remained stubbornly low and, in real terms, median pay packets are still worth less than they were in 2008.”
The December ONS report notes that for October 2018 average regular pay (excluding bonuses), before tax and other deductions from pay, for employees in Great Britain was £495 per week in nominal terms (that is, not adjusted for price inflation), up from £479 per week for a year earlier. This would be £1,916 in a four week month. This is certainly welcome news for Britain’s workers. But while wages are rising faster than inflation, it is not clear that they are keeping up with key elements of the cost of living. For example, the average cost of renting a home in Britain per month was £1,212 in November or nearly two thirds of the average wage earner’s monthly salary.
Historic Employment Figures: A Challenge for Employers
While the number of people working in Britain rose to a record high, unemployment also increased by 20,000 to 1.38 million. The ONS report notes that “The reason both employment and unemployment have increased is a result of the UK’s rising population and more people joining the labour force, such as students and older people.”
The challenges presented by a tight labour market is a cause for concern for UK employers:
Suren Thiru, head of economics at the British Chambers of Commerce, commented, “Businesses report that the political and economic turbulence, together with significant difficulties finding the right staff, are diminishing recruitment intentions, which is likely to increasingly weigh on the UK labour market over the near term. More must be done to support firms looking to recruit.”
The lack of available workers is compounded by a skills shortage in the UK, particularly in the technology sector as The Times reports:
“The technology industry fears that a skills shortage could stunt its growth, with new figures showing that job vacancies are growing.
The number of unfilled positions in the information and communication technology sector last quarter rose by 24.3 per cent compared with a year ago, according to data from the Office for National Statistics, one of the largest increases of any industry.
The ratio of jobseekers with previous employment in the industry to relevant jobs has dropped below one, meaning that there are more vacancies than people looking to fill them.”
Brexit Uncertainties: The Unwelcome Guest that Just Won’t Leave
No matter how good a jobs report may be, uncertainty over Brexit continues to cast a shadow over any positive economic news:
“Leaving the EU is likely to disrupt many sectors of the UK economy, including those that rely heavily on European workers. The magnitude of the disruption will depend on the details of the final Brexit agreement, which is making its way through a tortuous political process leading up to the March 29 deadline. In the longer term, the trading relationship between the UK and the EU after the Brexit transition period will be crucial. Will trade continue to be nearly frictionless or will it suffer economic and administrative barriers? Will migration policy support or hinder growth? The answers to those questions will determine the extent to which Brexit affects the economy’s productivity and thus the living standards of UK residents.
Hiring challenges. Low unemployment, falling migration and uncertainty about post-Brexit migration policy mean that businesses in many sectors are finding it increasingly difficult to hire staff. To recruit the workers they need, will employers tap more into under-utilised demographic groups? Young people, single parents, minorities and people with disabilities are less likely than average to be part of the labour force and their unemployment rates are above average. Whether employers manage to attract those groups into employment through higher wages or benefits — or whether they respond to hiring difficulties in other ways, like investing in automation — is a trend to watch in 2019.”
So by all means, open up that bottle of champagne. The ONS report provides plenty of good reasons to celebrate. Just be aware that there are many sobering details that must be dealt with after the celebration ends.