Worker wage squeeze remains rife as UK unemployment falls to 6.2%, says ONS
The news that the countryís unemployment rate has now fallen to its lowest value since 2008 would usually be welcomed with acclaim and applause, but it is separate statistics describing the stagnant growth in worker wages during the second quarter of this year which has stolen the headlines.
The Office for National Statistics (ONS) identified that unemployment in the country dropped to 6.2% during the three months to July, representing its lowest value since 2008, and signifying that a monumental 146,000 managed to find work during the second quarter of this year.
However, the news has been tarnished by separate statistical disclosures from the ONS, which highlighted that the growth in householdís wages grew at the slowest rate ever recorded. According to the their data, average weekly wages including bonus payments rose by 0.6% in the three months to July this year, whilst normal incomes only rose by 0.7% during the same timeframe, illustrating the slowest level of growth since data of this kind begun being recorded back in 2001.
And whilst the latest disclosure is a positive step in the right direction from the previous round of statistics, which shockingly displayed that wages had actually contracted by 0.2% in the three months to June this year, the reality is that wages continue to be heavily outstripped by inflation, with the ONS highlighting that the inflation rate over the same period was 1.6%.
And this has added further credence to arguments from the opposition, trade union leaders and consumer groups that the country is currently undergoing a ëcost-livingí crisis, where the real value of worker wages is diminishing every month, due to inflation consistently being higher than the rise in their wages. This has made it difficult for a number of lower-income householdís to cope with the costs of various areas of living essential expenditure in their lives, such as with their energy, housing, transport and utility bills.
The ONS estimated that around 30.6 million individuals were in some form of employment as of the end of July, representing a monumental 468,000 rise from the equivalent figure a year before, and 74,000 higher than the quarter before.
However, a number of market analysts have argued that the significance of this fall has been minimised by the fact that the majority of people who found work over the second quarter did so on a part-time basis, with statistics describing the growth in full-time employment illustrating the slowest quarterly rise in nearly a year.
Nevertheless, the government will be able to point to the 66,000 fall in the quantity of individuals currently in part-time employment due to being unable of attaining full time work, which perhaps is implicit that people are not just acquiring part-time work due to a failure of the market.
Last week, Bank of England governor Mark Carney outlined his expectation that wages would begin outstripping inflation ìaround the middle of next yearî, also forecasting that unemployment will continue its downward trajectory during this time to around 5.5% next year.
The positive estimates will be welcome news to the embattled lower income householdís of the country, who have long been promised the allure of higher wages without the market seeming to deliver on its usual trend of wage improvement after an upturn in economic output.
Economists have also forecasted that higher levels of wage growth will begin to occur in the next few months, as declining rates of employment growth are implicit that productivity will rise as well, putting employers in a stronger position to pay their workers more.
ìWages remain the missing link in this recovery. But with job vacancies up by 25pc in the last year and unemployment at a six year low we see earnings heading up from here,” said Ian Stewart, chief economist at Deloitte.
Interest rate hikes
The latest round of data on both unemployment and wage growth has re-sparked debate over the timing in which the Bank of England will implement their first rate hike from its historic low of 0.5%. The news comes on a day when the latest minutes from the Monetary Policy Committeeís (MPC) indicated that policymakers remained split on when to instigate the first hike,, with a 7-2 vote in favour of delaying the occurrence highlighted in todayís disclosure.
A number of leading economists have argued that the low rate of inflation in the UK at the moment has meant that the Bank will likely wait to raise rates until some point next year, though worker wages will need to be addressed in order to ensure that inflationary pressures do not get to strenuous on the incomes of marginal householdís.
“The Bank still has time to wait on interest rates given weak wage growth, but not too long as unemployment is falling like a stone,” said Rob Wood, chief UK economist at Berenberg Bank.
However, researchers from Citigroup has argued that the growth in employment has carried on its trend of being focused in employment sectors which are characterised by lower wages, which has brought down the figures for the total growth in incomes.
“We estimate that the number of employees rose 3.9pc year-year between May and July in sectors where the typical level of pay is at least 20pc below the average for all sectors: conversely, employment fell slightly (0.1pc y-y) in sectors with pay levels that are at least 20pc above the UK average,” said Michael Saunders, chief UK economist at Citigroup.
“In turn, the expansion of low-pay sectors is likely to depress both average earnings growth and productivity growth.”
The reality of this trend led to the Bank slashing its previous annual growth forecast for wages this year to just 1.25%, up significantly from its 2.5%+ estimate at the start of the year.
ëStill much to doí
Commenting on the latest figures, Chancellor Osborne conceded that a lot of work still needs to be done in order to ensure that work pays in the country; a mantra that the government has been keen to stress they are working on delivering for some time now. Osborne tweeted: “Today’s employment stats mark another step towards full employment. But still much more to do”. Labour argued that the latest figures highlight the ongoing problems in the market surrounding wages, and will likely use the statistics to reinforce their previous assertion that there is now a ëbroken linkí in the market between economic performance and worker wages. Labour’s shadow employment minister Stephen Timms said: “Today’s fall in overall unemployment is welcome, but the new figures have shown working people are seeing their pay falling far behind the cost of living. “Pay excluding bonuses today is the lowest on record. Under this government wages after inflation have already fallen by over £1,600 a year since 2010 and by next year working people will have seen the biggest fall in wages of any Parliament since 1874.”