Employment soars, wages fall (again)

Very strong employment growth has not prevented a fall in average wages, official figures from the Office for National Statistics show today.

In the three months to April, total average weekly earnings (including bonuses) rose by 0.7 per cent compared to the same period a year ago. Regular average weekly earnings (excluding bonuses) rose by 0.9 per cent over the same period. Both are well below the CPI rate of inflation, which is currently 1.8 per cent.

While these figures, at first glance, suggest total pay falling faster than regular pay, the picture is distorted by a year-on-year comparison with months including April 2013, when a large amount of bonuses were paid later than usual to take advantage of a reduction in the top rate of tax from 50p to 45p. But with both measures lagging inflation, the overall story of 2014 so far has been wages breaking even at best but not yet showing sustained growth seen during the exit from previous downturns.

With the wages of employees falling, there is no evidence of inflationary pressure from pay which would support arguments for a rise in interest rates in the short-to-medium term – although in the longer term a rise is inevitable.

A further reason for caution over today’s average weekly earnings data is that it excludes earnings of the self-employed, who account for one in seven workers and whose earnings fell even more sharply than those of employees in the years from 2008.

Employment figures released today show the largest quarterly increase in employment since consistent records began, with the number in work up by 345,000 in the three months to April. In contrast to the previous six months, the majority of this increase was composed of employees (265,000), with the number of self-employed increasing by 73,000 over the quarter [Note 1]. Although not dominating in the way that it has in recent months, self-employment continues to punch above its weight and accounts for the majority of employment growth since the start of the recession.

Today’s employment figures also show that the jobs gap – the number of jobs that still need to be created to return to the employment level seen in 2008 (adjusting for population growth), narrowed slightly to 378,000 (for 16+), down from 461,000 in last month’s labour market figures. The jobs gap for those who are 16-64 has fallen from 138,000 to 55,000.

Laura Gardiner, Senior Analyst at the Resolution Foundation, said: 

“The volatility of earnings figures, rising and falling at different points this year, only underlines the imperfect nature of what we know about average pay. Distorted by the bonus picture in 2013, and missing the growing pool of 4.5 million self-employed workers, the best we can say about these latest figures is that 2014 has yet to live up to its promise of being the year of the pay rise.

“The positive picture on employment – with a strong rise in the number of both employees and the self-employed – should eventually help to push up average wages. But there’s no sign of it happening yet.”

Notes:

1. The increases in employees and the self-employed do not sum to the total employment increase because this figure includes unpaid family workers and those on government employment and training schemes.