Unemployment and earnings: all bad news … or is it?
The news on unemployment is unremittingly bad as very widely reported today. Worklessness on the ILO headline measure has breached 2 million and there has been an expected but shocking spike in the number of people claiming unemployment benefit (which is more up to date than the ILO figure). Redundancies are also up and vacancies are down. This all comes after we published data a few days ago showing that the ratio of jobseekers to vacancies stood at 10 to 1. It was less widely reported that this compares to a ratio of 4 to 1 this time last year. All very grim.
But we are also being told that earnings data released today shows that the recession is now feeding through to pay rises with average earnings only rising 1.8% on the year in January down 1.3% on the previous month. It has been claimed that sterling has fallen in direct response to this. But the data is very misleading. This figure includes bonuses which have deteriorated massively because of the collapse in the financial services sector (which some may have noticed has a thing about bonuses). Once you ignore the effect of the reduced bonuses, the data shows that earnings actually rose by 3.5% which is only down 0.1% on a year ago.
So after two quarters of negative growth and inflation dropping like a stone, earnings are still rising at their long term trend. What this shows is that pay is a complex matter which is related to wider economic performance in only indirect ways. It also makes those business organisations that have been calling and predicting widespread pay freezes and a freeze on the minimum wage look pretty daft.