This morning,
the Office for National Statistics published the Labour Market Statistics (LMS)
release for April. This draws on Labour
Force Survey data for the period December 2013 to February 2014 and Jobseekers’
Allowance claimant data for March 2014.
There have
been expectations that this morning’s LMS would indicate that pay levels are increasing
at a greater rate than general price inflation for the first time in almost
five years. Yesterday it was announced that inflation had fallen to 1.6% on the
Consumer Price Index for the 12 months to March 2014 (down from 1.7% for February). This is the sixth consecutive monthly fall
and the third month in which inflation was below the Bank of England’s 2%
target rate. A survey of economists undertaken
on behalf of Reuters predicted that pay growth would exceed
inflation, with an average prediction of 1.8%.
Some of this morning’s headlines projected an end to ‘the cost of living
crisis’, and an associated “blow to
Labour’s economic strategy”.
The latest
estimates do not quite indicate wage growth outstripping inflation. Total pay, which includes bonuses, did
increase by 1.7% in the three months to February 2014 compared to the same
quarter a year earlier, but ‘regular pay’, which excludes bonuses, increased by
1.4% - which remains slightly lower than the current estimate of inflation on
the CPI. This does indicate a
significant increase on previous estimates of earnings growth, and is the
highest rate of regular pay growth since the three months to February
2012. However, on the basis of a single
monthly estimate, it is premature to suggest that the squeeze on household
income affecting the UK since the onset of recession in 2008 has come to an end.
During this period, there has been a
sustained and significant decline in earnings in real terms. Therefore it will be some time before there
is a noticeable improvement, although the latest estimates could indicate a beginning
of a recovery in living standards.
Other key
labour market indicators in today’s release also indicate continued
improvements. The unemployment rate fell
by 0.2 percentage points on the previous quarter to 6.9%. This is below the 7% level originally identified by the Governor of the Bank of
England in summer 2013 as a threshold at which point the Monetary Policy
Committee may consider increasing interest rates. This forward guidance has since been revised
to include a broader set of measures of economic performance. However, the rate of unemployment remains
higher than the pre-downturn level of 5.2% that was maintained through late
2007 and early 2008.
Conversely,
the rate and number employed has increased, although the increase in the number
of employees continues to be outstripped by the number entering
self-employment, raising continued concerns about ‘necessity entrepreneurship’
– individuals becoming self-employed because they have been unable to secure
paid employment. In analysis published
on Monday, the TUC
estimated that 44% of the net increase in the numbers employed since 2010 has been due to self-employment,
40% of which are working part-time. The
authors of this analysis fear that it indicates an increasing number of ‘odd
jobbers’ who may become locked in a cycle of low pay, low skill work with
unreliable hours and limited protection (sick pay, holiday pay, etc.).
Unemployment
and Employment Rates
According
to the latest Labour Force Survey, for the period December 2013 to February
2014, the unemployment rate[1]
fell by 0.2 percentage points on the previous quarter to 6.9% of the
economically active population aged 16 and over. The number unemployed fell by 77,000 on the
previous quarter, to a total of 2.24 million adults.
The number of people unemployed for over one year has also
decreased, by 32,000 on the previous
quarter (to a total of 807,000).
Youth
unemployment also fell on the previous quarter, by 0.9 percentage points to
19.1% of economically active 16 to 24 year olds, equivalent to 881,000
individuals.
The
employment rate (for adults aged 16-64) increased on the previous quarter, by 0.4
percentage points to 72.6%, which Is equivalent to 30.39 million resident
adults in employment in the UK (an increase of 239,000 on the previous quarter).
A further
significant increase in self-employment accounted for a large proportion of
this total increase. The number of
employees increased by 99,000 (to 25.6 million) whilst the number self-employed
increased by 146,000 on the previous quarter (to reach 4.5 million). TUC
analysis of LFS data since 2010 notes that increasing levels of
self-employment have been observed through much of the period, and raise
concerns around the nature of new self-employment. Their
analysis suggests that:
- Over the period April to June 2010 to November to January 2013, the number of employees has increased by a total of 656,000 (a 2.6% increase over the period) whilst the number self-employed has increased by 540,000 (a 13.8% increase). Self-employment has therefore accounted for 44% of the total increase in the numbers of adults in employment since mid-2010;
- Within the increase in self-employment, the number of those working part-time has increased by 22.3% (compared to a 10.8% increase in the number of self-employed working full-time);
- Older workers (50+) have made up 50% of the overall increase in self-employment; and
- Those working as Sub-contractors and Freelancers have increased by the largest amount, followed by those Working for Themselves - with the number of self-employed working as Partners Running a Business decreasing very significantly.
Separate
research by the
Resolution Foundation found that the median earnings of the
self-employed fell significantly following the onset of recession, to a median
annual salary of £12,000 in 2010 – which
is close to the minimum wage. Together
these developments suggest that, rather than a significant increase in people
starting new companies as Ministers have suggested, recovery in the labour
market remains fragile with many people moving into casualised, relatively
insecure, low pay/low hours self-employment.
Earnings Growth
Estimates of
earnings growth in the latest LMS do
show a significant increase compared to previous quarters, although it is not
quite true to say that earnings growth has unequivocally exceeded the rate of
general price inflation (1.6% on the CPI in the 12 months to March). Between the periods December 2012 to February
2014 and December 2013 to February 2014, total pay (including bonuses) rose by
1.7%, just above the rate of inflation.
However, regular
pay (excluding bonuses) rose by 1.4%.
This is the highest rate of growth in regular pay since the period
December 2011 to February 2012 (which was 1.6%) and is up by 0.2 percentage
points on the previous quarter – but still remains slightly lower than the rate
of inflation.
Job Seekers’
Allowance Claimants
The
number of Jobseekers’ Allowance (JSA) claimants in March 2014 fell on the
previous month, by 30,400, whilst the rate was down 0.1 percentage points to
3.4% (and down 1.2 percentage points on the same month a year earlier). This is the tenth consecutive month in which
the rate of claimant count unemployment has fallen.
Redundancies
and Vacancies
In the three months to February 2014, 117,000 people were
made redundant, up 5,000 from the
previous quarter but down 20,000 from the same period a year earlier.
The number of vacancies
(advertised through Jobcentre Plus) in the three months to March 2014 increased
by 38,000 on the previous quarter to total 611,000. The number of ILO unemployed adults to every
one vacancy in the three months to February 2014 was 3.8, down 0.3 percentage
points on the previous quarter.
Key Regional Developments
Unfortunately
earnings estimates are only published at UK national level in the monthly LMS,
so it is not possible to comment on sub-national variations in earnings growth
rates. This will be possible when the
2014 Annual Survey of Hours and Earnings is published in November.
- Compared to the previous quarter, unemployment rates and levels fell in six English regions, but increased in Yorkshire and the Humber, the East Midlands and the West Midlands.
- Unemployment increased most significantly in the East Midlands, by 14,000 on the previous quarter, to a total of 163,000 adults aged 16 and over who are unemployed in the region. The unemployment rate increased by 0.6 percentage points to 7% - which is slightly higher than the national average.
- Employment in the East Midlands fell, by 12,000 individuals, resulting in a slight fall of 0.1 percentage point in the employment rate, to 72.4% (slightly lower than the national average). Unemployment increased by a greater amount than the corresponding fall in employment because of a fall in economic inactivity (people who are neither employed or unemployed – i.e. not able to work or actively seeking work). Therefore, compared to the previous quarter, a significant number of individuals in the East Midlands are likely to have moved from economic inactivity to unemployment (able to work and actively seeking work).
- The most significant falls in unemployment were in the South West, where the numbers unemployed fell by 51,000 (whilst the rate decreased by 1.9 percentage points) and the North East, where the numbers fell by 10,000 (and the rate by 0.9 percentage points). However, the North East continues to have the highest rate of unemployment of the nine English regions, at 9.3%.
[1]
According to the International Labour Organisation (ILO), this is defined as
those who are out of work but available for, and actively looking for,
employment within a set period. This is
expressed as the proportion of ‘economically active’ (employed plus unemployed)
adults.
