Labour Market Outlook
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Labour market
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Pay

The RF Earnings Outlook Q4 2015

Laura Gardiner
Laura Gardiner

In terms of measured jobs market performance and the broader earnings picture, the key recent change has been a gloomier view on productivity, due both to poor Q4 outturns and in particular the downward forecast revisions at last month’s Budget. The productivity disappointment has been mirrored in more muted real average weekly earnings growth. The latest figure, 2.0%, is the product of stable (well-below-trend) nominal growth offset by inflation slowly rising from zero. Our near-term projection suggests growth tailing off further to below 1.9%, short of the pre-crisis trend of 2.2%.

In this regular briefing we use 13 key indicators to take a more detailed look at underlying trends and prospects for the future.

Key findings

  • Our earnings breakdown suggests that steady pay growth has been driven by a combination of further growth in pay settlements for employees continuously in work, and a boosting effect from changes to the make-up of the workforce. The latter, following 18 months of negative or well-below-trend compositional effects and driven largely by positive occupational shifts, is particularly welcome. Our estimates suggest pay inequality has continued falling.
  • Our analysis of pay pressures and slack shows un- and under-employment continuing to fall steadily, but not feeding through to confidence to move between jobs. In addition, migrant job entry has ticked up. Changes in these indicators tend to lead nominal wage growth and they were improving in the main until recently, so we might still expect some upward pressure on pay to come through. As well as its role as an economy-wide slack indicator, our ‘Spotlight’ article considers how lower job-to-job moves may be constraining young people’s pay in particular.
  • Beyond weak productivity described above, our review of longer-term labour market health and efficiency shows a small increase in participation (which will be the key driver of employment growth as unemployment approaches its lower limit), but a further deterioration in the training investment and qualification-job matching measures that help us to understand both the development of productive capacity and the efficiency with which it is put to use.

Further reading

Get Britain’s Stats Working
Exploring alternatives to Labour Force Survey estimates
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Adam Corlett
Calculating the Real Living Wage for London and the rest of the UK: 2024
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Nye Cominetti, Louise Murphy
Labour Market Outlook Q3 2024
The Growth and Skills Levy
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Sofia Corcoran, Louise Murphy
Laura Gardiner
Laura Gardiner