Wages Fall as Unemployment decreases ñ UK workers & Bank of England faced with challenging paradox
The UK recorded its first decrease in wages since the financial crisis of 2009. The statistic is made somewhat perplexing by the concurrent fall in the unemployment rate to 6.4%, as the two indicators appear to be at odds with one another regarding the state of the economy.
Compiled by the Office for National Statistics (ONS), Wednesdayís figures show a fall in wages, including bonuses, by 0.2% for the second quarter on the previous year. Though this fall can be corroborated to an extent by a great number of employersí decision to withhold bonuses until last April, which had the effect of distorting the data, wages excluding bonuses still grew at their slowest rate, 0.6%, since records began in 2001.
However, employers continued to take more staff on board, as the unemployment fell by another percentage point to 6.4% in the second quarter. This figure represents an increase of 167, 000 people now in work, with youth unemployment, significantly, falling at an unprecedented rate.
The seemingly contradictory statistics make for interesting discussion.
Low Paid Jobs preventing Economic Recovery
The relationship between falling unemployment and falling wages indicates the market withholds many low paid positions. However, this does not aid stabilisation of an unsettled economy. There have been calls for better-paid jobs for professionals, so as to deservingly enhance many peoplesí living standards, however given the ONSí findings today, there now exists an urgency to answer these calls, and answer them with solutions.
The TUS secretary highlighted the impact of self-employed workers not being included in the survey, stating that as this division of the employment sector are generally paid worse than employees, the waters surrounding falling pay are even murkier than initially thought.
She said: "Self-employment has been responsible for almost half of the rise in employment over the last year. The fact that self-employed workers generally earn less than employees means our pay crisis is even deeper than previously thought, as their pay is not recorded in official figures."
However, Chief Secretary to the Treasury, Danny Alexander, has welcomed the data as a clear sign that the prognosis of the market is beginning to pick up.
Mr Alexander said: "There is still a long way to go, but this is solid progress and the significant fall in youth employment is particularly encouraging and welcome."
Although heightened levels of youth employment is without doubt promising for the future, presenting young people with lower and lower wages will not serve to augment their aspirations.
Recent surveys assessing pay levels within the UKís employment sector have shown wages still lagging behind inflation levels. This situation does not appear to be set to change any time soon, according to the Chartered Institute of Personnel & Development. Stephen Timms MP, Labourís shadow employment minister, used the ONS statistics as basis for lambasting the ìextremely worryingî reality of falling real wages for the government.
He stated: "For Iain Duncan Smith to claim that people are 'better off' in the face of these figures shows just how out-touch this Tory-led government is."
Timms was referring to Duncan Smithís crackdown on benefit claimants, which the incumbent Work & Pensions secretary suggested was ìcreating growth and jobsî.
ëPaymageddoní ñ What it means for interest rates?
There is a possibility that current employees are exhibiting timidity regarding pay rises, as they recall the financial crisis, and its resulting job insecurity which permeated throughout the employment sector. As such, employees recognise that employers have a breadth of hiring options and are reluctant to appear over-demanding.
However, less economic strain on companies due to fewer pay rises ought to keep the lid on inflation, which could subsequently prevent the BoEís Monetary Policy Comitte (MPC) from raising interest rates. As such, exorbitant borrowing costs could be avoided as a result of preposterously high inflationary levels ñ potentially a welcome side effect of weak wage levels.
John Philpott, director of The Jobs Economist, said that although increased employment levels are indicative of a burgeoning economy, workers are being duped and subjected to a ìPaymageddonî.
"Good news for the jobless is being offset by ever slimmer pickings for those already in work, giving the UK labour market a distinctly bittersweet flavour. This doesn't look like a labour market that needs an interest rate hike to cool it down but instead one where workers appear desperate for a pay hike,î he asserted.
Given the fragile state of the economic recovery, and the reality that wages are lagging behind at almost 3 times the rate of inflation, the MPC will be hesitant to increase interest rates too hastily. This is in line with the Bank of Englandís most recent Inflation Report, where it forecasted an interest rate hike in the second quarter of next year, focussing on wage patterns whilst forming its hypothesis.
Unfortunately, talk of economic recovery is essentially falling on deaf ears, due to just how gloomy the wage data seems. Wage growth is decreasing across all employment divisions, and until real wages pick up, one cannot blame workers across the UK for their disenchantment.