Labour Market Outlook
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Labour market
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Pay

The RF Earnings Outlook Q2 2016

Adam Corlett
Adam Corlett

The second quarter of 2016 marked both the introduction of the National Living Wage and the vote to leave the European Union. There are tentative signs that the former has led to strong shared pay growth without affecting aggregate unemployment, but more data will be needed. Referendum effects are not yet visible, but Q2 2016 – and the labour market trends up to this date – may be considered the baseline against which any impacts can be assessed.

Key findings

  • We have seen more tightening of the labour market, with unemployment falling to a 10.5 year low. Underemployment and long-term unemployment are back to pre-crisis levels, while participation rates – including for groups with traditionally low rates – are at record highs.
  • Nonetheless, productivity growth has remained weak, and real employee pay growth was 1.7% in July, still below the pre-crisis average despite low inflation. With self-employment rising sharply in recent years, our ‘Spotlight’ focuses on how self-employment earnings are faring. There are signs of recovery, but rewards are still far below pre-crisis levels even accounting for large changes in the make-up of the self-employed.
  • Our earnings breakdown suggests that changes in the make-up of the workforce are increasingly supporting average wage growth, and that the exclusion of the self-employed from earnings statistics continues to be a key omission.
  • Our analysis of pay pressures and slack shows that un- and under-employment fell again in Q2 2016, back to pre-crisis levels. But we also lift the lid on large differences between age groups. As a leading indicator of pay growth, job mobility has been broadly flat and remains considerably below its post-2000 peak.
  • Our review of longer-term labour market health and efficiency continues to present a mixed bag. Participation has risen still further, including for low-participation groups, but weak productivity growth and little progress on training intensity and the share of graduates doing non-graduate roles remain key long-term challenges.

Further reading

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
Low Pay Britain 2024
Examining the Government’s proposed employment reforms
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Nye Cominetti
Adam Corlett
Adam Corlett Principal Economist