Weak earnings growth continues to be the trade-off for higher employment - Ernst & Young ITEM Club comments on today's labour market figures
Nida Ali, economic advisor to the Ernst & Young ITEM Club, comments on today’s labour market figures:
Yet another set of robust figures for the labour market, which are at odds with the wider economy
Weak pay growth continues to be the trade-off for higher employment
The improvement in the labour market is unlikely to continue and the risk of a shakeout remains high
“Yet another set of robust figures for the labour market, with a chunky increase in employment and a sharp fall in the claimant count. There is also pleasing evidence of underlying strength, with the rise in employment almost entirely due to increasing numbers of full-time employees.
“But these strong employment figures just don’t tally with the wider economy and raise yet more questions over the veracity of the various data sources. Put simply, if we take the GDP and labour market data at face value, what are all these extra workers actually doing?
“Continuing the pattern over the past year, weak earnings growth continues to be the trade-off for higher employment. At just 1.3% on the regular pay measure, wage growth is now almost 1.5 percentage points behind inflation. Although this is a smaller gap than this time last year, it is still going to be difficult to generate much of a pickup in consumer spending until earnings start growing again in real terms.
“Where the labour market goes from here is unclear. These figures indicate that the UK has suffered a severe slump in labour productivity. As such, it is unlikely that growth in full-time employment will be maintained if the economy remains in the doldrums. The risk remains that firms which have held on to their employees in the hope of an upturn will be disappointed and start to cut staff numbers.”
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