he Financial Times questioned economists for its annual publication of economic forecasts: “With unemployment at a 40-year low, how much of a pay rise will British workers get in 2018?” (See here:) PRIME economists responded thus:
Publication this week of the Taylor Review of Modern Working Practices was followed on Wednesday by the latest monthly employment stats from the Office for National Statistics (ONS). These tell us that the number of those in work continues to rise significantly, but that real wages are falling at their fastest rate for nearly 3 years. Yet the CBI claimed in its submission to Taylor that over decades, the UK's flexible labour market has given rise to strong growth in real wages. In fact, the opposite is true.
If all five million public sector workers were granted a pay rise of 3%, the EXTRA cost to the Treasury - over and above the government's already-promised 1% - would be just over £3 billion a year. This is not a generous pay rise. It would enable public sector workers to just keep up with inflation. In other words, it would prevent inflation eating into the real value of their pay rise. It would not compensate for years of cuts in real wages.
A key issue in the upcoming EU referendum is whether being a member of the EU is a positive thing for British workers, and especially for workers on low wages. This article examines the evidence on this issue, focusing in particular on two aspects. Firstly, the empirical evidence on whether increased migration from other EU countries in the past 15 years has had any negative impact on wages. Secondly, the overall impact of EU membership on economic performance, looking at the effect on wages indirectly.
There is no evidence that increased immigration from other EU countries has had a negative impact on average wages in the UK, although there is some evidence of a small negative impact for low-earning migrant workers already present in the UK
In her contribution to "Cracks Begin to show: a Review of the UK Economy in 2015", published by Economists for Rational Economic Policies, Özlem Onaran argues that growth in Britain is still based shaky grounds as it is driven by a major increase in private household debt, and will remain fragile to any increase in interest rates in 2016. Working people are obliged to rely on debt to maintain their living standards in the absence of a healthy growth in their wages.
The rise in inequality and stagnation in wages are among the fundamental flaws in our economic model, and we are far from correcting this imbalance
The latest UK annual CPI inflation statistics, for August 2014, were published today by the Office for National Statistics. They show annual inflation down to 1.2%. The last time the annual rate was below this was in September 2009, in the depth of the recession, when it fell to 1.1%. Assuming that the present lower CPI inflation trend is continued in coming months, as seems probable, we will be back to levels last seen in the late 1990s and up to 2004. The lowest levels this century were in May 2000 (0.5%) and June 2002 (0.6%).
As the credit crunch has progressed the issue of wage growth and in particular the lack of it has moved ever more centre stage in economic analysis especially in the UK. It is hard to believe now, but the Office for Budget Responsibility (OBR) forecast wage growth of around 5% back in the summer of 2010. Not only was that the stuff of fantasy, but I also feel that such forecasts encouraged the Bank of England to think that above target inflation would only have a minor adverse effect on the UK economy.
While we await Scotland's decision on its future, I thought readers might like to see how some important elements have developed in the UK as a whole since the Coalition government took office in May 2010.
One of the features of the credit crunch era in the UK has been the way that the output (Gross Domestic Product or GDP) numbers have told a different story to the employment ones. As we stand we have just exceeded the pre-credit crunch peak in terms of output but if we look at the 981.4 million hours per week worked in the spring of 2014 we see this.
Two rather unexciting news items were released this May. First, the ECB has kept the bank rate at 0.25 per cent as expected. The ECB board must, like the IMF, be concerned about deflationary tendencies in the Eurozone.
Today the ONS published its preliminary estimate of GDP figures: “Output increased in three of the four main industrial groupings within the economy in Q4 2013 compared with Q3 2013. Output increased by 0.5% in agriculture, 0.7% in production and 0.8% in services. However, output decreased by 0.3% in construction.” We are not impressed, because without structural adjustments to the British economy, this “recovery” will not increase living standards but will be a short-term increase in GDP and employment – bound to be reversed as soon as interest rates rise again.
Look, we’re really sorry to come back so soon to the question of the UK labour market. But when someone as normally incisive as Izabella Kaminska of FT Alphaville asks “Are UK companies hoarding labour?”, and opens by saying
“Something of a puzzle is emerging in the UK’s labour market”
…well, we realise that there’s a lot of what we can only describe as “puzzlement” out there.
Another month, another “puzzle”. How come overall employment has risen again (up 251,000 in June compared to a year ago), while the GDP figures are so poor? The Bank of England call this “a genuine economic puzzle”, whilst many economists – such as the Sunday Times’s David Smith whom we quoted last month - argue that the GDP figures are significantly underestimated by the Office for National Statistics.
n Wednesday this week, the ONS will publish its first estimate of the Q2 GDP numbers for the UK. After the IMF’s gloomy country mission report last week, a lot of attention will be paid to these.
In his Economonitor blog of today, “UK: Gloomy Growth Numbers – But Not So Miserable Now”, Sunday Times economist David Smith argues that it is hard to reconcile the recent positive growth in employment– including full-time employment – with the generally gloomy forecasts for GDP growth or ungrowth. He believes that the GDP figures for this year will in due course be revised upwards. Is his faith justified?