Pay recovery looks set to continue throughout 2015

Fresh policy action needed to reignite Britain’s stalled employment growth

Britain’s pay recovery looks set to continue throughout 2015 but employment growth appears to have stalled, the Resolution Foundation said today (Wednesday) in response to the latest labour market figures.

Real wages (excluding bonuses) continued to grow by 2.8% in the year to June – as predicted by the Foundation last week – the joint fastest wage growth since September 2007. The Foundation notes that despite the steady real pay growth in the first half of 2015, average earnings have only recovered as far as their August 2004 level – and remain almost £30 a week short of their pre-downturn peak. It also emphasises that the growth in real wages is mostly due to continued low inflation.

The Foundation noted last month that younger workers’ wages have been particularly hard hit over the course of the downturn and pointed to a slowdown in the rate at which people are moving from job to job – a key way to gain promotions and higher pay.

New figures published today by the Office for National Statistics show that such movements from job to job remain subdued. The Foundation says that improvements in this rate are likely to be required before we see sustainable wage growth over the medium term.

The headline employment rate remained broadly flat at 73.4%, which suggests that the UK’s remarkable jobs recovery appears to be levelling out. The Foundation says that fresh policy action will be needed to reignite jobs growth and meet the Chancellor’s target of raising employment by two million by the end of the parliament.

Recent Resolution Foundation research, conducted as part of its major full employment project, found that raising employment among those groups who are often furthest from the labour market – such as those with poor qualifications, ill-health or a disability – towards the levels recorded in the best performing areas of the country could help almost a million more people into work.

Matthew Whittaker, Chief Economist at the Resolution Foundation, said:

“Britain’s pay recovery looks set to continue throughout 2015, helped along by historically low inflation. But with average earnings having only recovered to their August 2004 level, there is still a huge amount of ground to make up.

“We’re seeing some significant differences in pay growth across the sectors. Most obviously private sector pay is rising much more rapidly than public, but it’s encouraging to see growth of 4% in the low-paying retail sector. However, manufacturing pay growth stands at just 1.3%, well short of the 4.3% recorded in the finance sector.

“It’s a concern that the employment recovery isn’t doing more to boost the pace at which people move jobs. This needs to increase before we can expect to see strong real wage growth over the medium term.

“After two years of remarkable jobs growth the UK employment rate is starting to level out. It’s likely that we’re nearing the limits of what’s possible through employment ‘catch-up’ alone.

“Moving further – and heading towards full-employment – is likely to require a new bout of concerted policy action designed to support employment among those groups who are traditionally further away from the labour market.”