Today has opened with the subject of wages and pay in the news ahead of the official data on the subject. The particular issue is described by the Financial Times below.

 

It was Mr Hammond’s predecessor, George Osborne, who first imposed pay restraint on the public sector back in 2011-12, as part of the then coalition government’s efforts to balance the state’s books after the financial crisis. He initially announced a salary freeze, and later a 1 per cent cap on pay rises.

This slipped out of the news when inflation was low but has returned as it has risen and another factor is that a minority government is much less likely to enforce such a policy than a majority one. The actual changes announced so far are below.

 

The government announced on Tuesday that prison officers will be given a 1.7 per cent pay increase, while the police will receive a one-off 1 per cent bonus on top of their 1 per cent rise. The settlement for the prison service is in line with an independent pay review body’s recommendations. The deal for the police is somewhat less generous than the 2 per cent recommended by another pay review body.

So far the changes seem to be fiddling at the edges but those who have read or watched the Dambusters story will know that a small crack can turn into a flood of water. It seems unlikely that teachers and nurses for example will not get such deals although I also note that the new regime remains below inflation.

As to the debate over wages in the public and private sectors the Institute for Fiscal Studies offered some perspective in May.

 

Public sector pay rose compared to private sector pay during and after the 2008 recession, as private sector earnings fell sharply in real terms. Public pay restraint since 2011 has led to the difference between public and private sector pay returning to its pre-crisis level.

Of course not everyone has suffered as salaries for Members of Parliament have risen from £65,768 in April 2010 when an “independent” body was appointed to £76,011thia April.

House Prices

One of the features of using a national average is that some do better and some do worse. On that vein there is this from the Yorkshire Building Society.

However, homes in 54% of local authority areas – including Edinburgh, Birmingham, Peterborough, Leeds and Harrogate – are more affordable now than they were before the financial crash due to wages increasing at a higher rate than property values over this period.

This leads to this conclusion.

At a national level, since September 2007 affordability has improved by 0.6% in Britain overall, by 18.9% in Scotland, 17.2% in Wales but has worsened by 3.3% in England.

My challenge to their calculations come from the fact that they use earnings which have of course risen as opposed to real earnings which have fallen in the credit crunch era. But it is a reminder that in some places house prices have fallen. For example if the “Burnley Lara” Jimmy Anderson was to buy a place back home with the earnings created by over 500 test wickets he would see an average house price of £77,629 as opposed to £94,174 back in 2007.

Oh and as you click on their site they announce their lowest mortgage rate of all time which is 0.89% variable for two years. I also note that it is only variable down to 0% as perhaps they too fear what the Bank of England might do in the future.

Also this morning’s data release reminds us that official UK earnings data ignores the increasing numbers of self-employed.

self-employed people increased by 88,000 to 4.85 million (15.1% of all people in work)

The UK employment miracle

It is easy to forget that the numbers below would have been seen by economists as some sort of economic miracle pre credit crunch.

For May to July 2017, 75.3% of people aged from 16 to 64 were in work, the highest employment rate since comparable records began in 1971…..For May to July 2017, there were 32.14 million people in work, 181,000 more than for February to April 2017 and 379,000 more than for a year earlier.

Some of this is likely due to changes in the state pension age for women but there is also a rise apart from that.  The overall picture is completed by the unemployment numbers.

The unemployment rate (the proportion of those in work plus those unemployed, that were unemployed) was 4.3%, down from 4.9% for a year earlier and the lowest since 1975…….There were 1.46 million unemployed people (people not in work but seeking and available to work), 75,000 fewer than for February to April 2017 and 175,000 fewer than for a year earlier.

The good news does leave us with several conundrums however. For example if the situation is so good ( employment rising when it is already high) why is economic activity growth weak? Or to put it another way why do we have low and sometimes no productivity growth? Last time around when we had a dichotomy between the quantity labour data and GDP it was the labour market which was the leading indicator but of course we do not know that looking ahead from now.

Average Earnings

These continued recent trends.

Between May to July 2016 and May to July 2017, in nominal terms, both regular pay and total pay increased by 2.1%, the same as the growth rates between April to June 2016 and April to June 2017.

There was a cautionary note in that if we look at the data for July alone there was a fall in bonus payments particularly to the finance sector so there is a possible slow down in pay on the way. However those numbers are erratic as we saw the same in April and then a bounce back.

Moving onto real wages we get something of a confirmation of my critique of the Yorkshire Building Society analysis above.

average total pay (including bonuses) for employees in Great Britain was £487 per week before tax and other deductions from pay, £35 lower than the pre-downturn peak of £522 per week recorded for February 2008 (2015 prices).

If we look at the annual rate of fall it is around 0.4% if you use the official inflation data which has switched to CPIH but around 1% higher if you use the Retail Prices Index.

Comment

This month has brought us a reminder that the credit crunch has affected people in many different ways. There was something of an economic aphorism that recessions were 80/20 in that for 80% not much changed but for 20% it did but these days more are affected. For example there are increasing numbers of self-employed about whose wages we know little. No doubt some are doing well but I fear for others. If we move to house prices some are seeing what are increasingly unaffordable values whilst others have seen price falls.

National statistics have been caused difficulties by this as for example depending on the survey used the base level is 10 employees or 20 depending on the survey. This was less of a problem when the economy moved in a more aggregate fashion but now assuming that is a mistake in my view. It also misses out ever more people.

I know the tweet below is from the United States but it covers a few of my themes including if you look closely an improvement apparently related to a methodology change.

Oh and the increases in 2015/16 came mostly as a result of the lower inflation central bankers tell us are bad for us.