Wages are falling behind as employment hits new high

Employment in Britain has reached a record high, although workers are failing to see a significant rise in wages.

The figure for people in work rose to 74.1 per cent in the final three months of last year, the highest level since records began in 1971. Unemployment remained unchanged at 5.1 per cent, the lowest level in a decade, while the ratio between those seeking work and vacancies was at its lowest since 2005.

Despite the good news, wage growth remains subdued, leaving economists and Bank of England’s policymakers baffled. Wages usually pick up sharply with rising employment because good workers become harder to find and employers pay more to attract or retain them.

Figures from the Office for National Statistics showed that average annual pay growth in the three months to December slowed slightly to 1.9 per cent compared with a 2.1 per cent rise in the three previous months. Excluding bonuses, pay edged up to growth of 2 per cent but this is still half the rate seen the last time unemployment was as low.

Ruth Miller, of Capital Economics, said: “The jobs recovery remains in full swing but with pay growth surprisingly weak there is little evidence that the rapid decline in labour market slack is feeding through to stronger wages yet.” Average weekly pay was £465 before tax, up from £456 a year earlier, but still below its 2007 peak of £490.

There is also an argument that employers have a wider pool of workers available, with people working later in life and a greater number of migrants available for work. The number of workers from the European Union employed in the UK in the final three months of the year was 2.04 million, some 215,000 higher than the same time last year. Since 2012, the number of EU nationals working in the UK has risen by 40 per cent.

There are also more young people coming into the labour market. Unemployment among those aged 18 to 24 has dropped from 14.3 per cent to 12 per cent in the past year. As younger people tend to be paid less, this will have pushed down the average wage.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said such factors would soon fade. “Wage growth is likely to strengthen markedly as these compositional changes wash out, labour shortages compel employers to pay more to recruit and retain staff, and as the national living wage is introduced in April,” he said.

About Steve Young

Steve Young is the Managing Partner of Downtown Recruitment who are based in Thame, Oxfordshire. Downtown Recruitment provide a wide variety of temporary and permanent staff to the local area covering a wide range of disciplines across the commercial and industrial sectors. View Downtown Recruitment's main website
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