New data from the Office for National Statistics show that real wages are stagnating. Earnings are not growing fast enough to keep up with surging inflation, and even where pay has risen, this may be a reflection of longer-run effects of the Covid-19 crisis.
According to the latest data, wages are not growing fast enough to keep up with surging inflation. Regular pay – once adjusted for price growth – has fallen by 1% (Office for National Statistics, ONS, 2022). The data also show that while the employment rate has increased from the previous quarter, so too has economic inactivity.
The latest figures (which cover the period from November 2021 to January 2022) show that the labour market is continuing to recover post-pandemic, at least in the headline rates. The unemployment rate has dropped (by -0.2 percentage points), and the employment rate has increased slightly (by 0.1 percentage points) over the quarter. This paints a promising picture.
The number of job vacancies is at also at a record high – with 1,318,000 positions currently advertised. Yet the growth rate of vacancies continues to slow, suggesting that firms might be altering their recruitment strategies.
UK inflation is currently at 5.4%, the highest it has been in 30 years. Many people are concerned as to whether wages will grow fast enough to offset the rising cost of living. According to the latest data, they have not. Real regular pay, which is pay excluding bonuses and then adjusted for inflation, has fallen 1% over the year.
In nominal terms, average total pay has grown by 3.8% from November 2021 to January 2022, and by 4.8% including bonuses. In fact, it is these strong bonus payments over the last six months that have kept the growth rate positive (at 0.1% for the year).
But not every industry offers bonuses, and they are more commonly found in the highest paying jobs – with the finance and business sector seeing the largest growth in total wages. Bonuses are also much more prevalent in the private sector compared with the public sector, leading to a significant gap in pay growth between the two.
It is likely that there is a significant base effect present in these data. As the figures measure the yearly growth, the starting point (or ‘base’) is the winter of 2020/21. At this point, there were strict lockdown measures across the UK, with many people furloughed or working reduced hours. A relatively low base in terms of wages means that the year-on-year growth figures may exaggerate the extent to which pay is improving.
The UK employment rate is estimated at 75.6%. This is 0.1 percentage points higher than the previous quarter, but one percentage point lower than pre-pandemic. The unemployment rate was at 3.9%, 0.2 percentage points lower than the previous quarter and returning to pre-pandemic levels.
Economic inactivity – the proportion of people aged 16-64 who are not working or seeking work – has risen to 21.3%. It has grown by 0.1 percentage points since the last quarter and is 1.1 percentage points higher than before the pandemic.
In the latest data, people aged 50-64 make up almost three-quarters of the economically inactive group. This could be a concern for policy-makers and employers alike, as there are now fewer people willing to fill the high number of vacancies. The ratio of unemployed people per vacancy fell to a record low of one in the period from November 2021 to January 2022.
Growth in the employment rate was driven by an increase in full-time employment. This was partially offset by the fall in self-employment (a trend that has continued throughout the pandemic). Part-time employment has continued to increase since April 2021 but remains below pre-pandemic levels.
Those with jobs are starting to work more. Total hours worked have increased since the previous three-month period, rising by 4.7 million to a total of 10.3 billion hours. While encouraging, this remains 23.1 million hours below pre-pandemic levels.
The cost of living is continuing to rise. A recent poll suggests that a third of people in the UK fear they won’t be able to afford gas and electricity bills if these continue to rise. Wage growth has not been able to keep up with inflation, adding strain to consumers who are already struggling with the current costs of living.
How policy-makers plan to mitigate this burgeoning crisis may become apparent when Rishi Sunak delivers his spring statement on 23 March 2022. Other recent statements have been dominated by Covid-19 and big spending packages. This time around it is likely that the Chancellor will aim to address energy prices, inflation and the controversial national insurance hike. Protecting real wages will be a key part of this equation. The latest data warn of the size of the challenge ahead.
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