UK Employment Figures, October 2018: From Job Growth to Pay Growth
Britain’s labour market is slowly pivoting from job growth to pay growth.
Britain’s labour market is slowly pivoting from job growth to pay growth. Pay is growing at its fastest rate since late 2008, with average weekly earnings excluding bonuses growing at an annual rate of 3.1%, supported in part by the public-sector pay rises announced during the summer. These positive trends raise hopes that the curtain is finally starting to come down on the lost decade of stagnant wages.
Employment fell slightly, however, as the labour market hovers around full capacity. With the unemployment rate remaining at 4.0%, its lowest level since the early 1970s, employers are having to fight harder and pay more to recruit staff. Vacancy data (see chart above) show that demand for workers remains strong.
While pay growth is slowly creeping up, the rising cost of living is clawing back much of the benefit for workers. The average employee’s purchasing power is still £11 less per week than at the pre-crisis peak over ten years ago. Adjusted for the rising cost of goods and services, real pay growth is growing at less than 1% year-over-year.
For the economy to deliver more sustained pay growth it needs an injection of the labour market ‘X factor’: faster improvement in productivity.