From the TUC

Unemployment and earnings: all bad news … or is it?

18 Mar 2009, by Guest in Labour market

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.

2 Responses to Unemployment and earnings: all bad news … or is it?

  1. Jonathan Green
    Mar 19th 2009, 1:46 pm

    Adam I think you’re right to attack those calling for a freeze in the minimum wage and to call to account those that generalise the trend towards pay freezes. In reality pay freezes are sector specific and driven by a number of different factors. But the news is fairly grim, looking at the long-term trends, the rise in average earnings have not kept pace with RPI inflation for the last 2 years, so in real terms earnings have been falling (so much for the government’s argument that pay rises drive inflation upwards!). There appears to be quite a close relationship between AEI indicies, including and excluding bonuses, but there is often a time lag between the two, so it is likely that the next movement in earnings growth, excluding bonuses, will be downwards. I think the important point that came across at the IDS/TUC pay bargaining conference is that there will be a floor below which pay agreements will not fall. What nobody knows yet is where that floor will be and how it will vary by sector.

    Jonathan

  2. Recession report #5: rocketing unemployment and few signs of relief | ToUChstone blog: A public policy blog from the TUC
    Mar 26th 2009, 2:34 pm

    […] slightly better news is that, as Adam has highlighted, actual wage growth has only fallen by 0.2 percentage points on the year, and as yet levels of […]