Weak pay growth continues to be the trade off for higher employment levels – ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s labour market figures:

  • Another set of pretty impressive figures, although there are signs that the labour market might be running out of steam
  • Weak pay growth continues to be the trade-off for higher employment
  • And the risk of a shakeout in the labour market remains strong

“These are another set of pretty impressive figures for the labour market, in the face of a weak economic environment. But the story remains similar to previous months, with the data betraying hints that the labour market might be starting to run out of steam. With growth expected to remain weak in the short-term, we would expect this trend to continue in the months ahead. 
“Weak earnings growth continues to be the trade-off for higher employment. At just 1.4% on the regular pay measure, wage growth is now more than a percentage point 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.
“The UK is paying the price of strong employment in terms of labour productivity, which fell sharply in the recession and has been very weak during the recovery phase. As such, it is unlikely that growth in full-time employment will be maintained if the economy remains in the doldrums. And 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.”