Archive for the ‘Employment’ Category

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The hard data was not that good, but there are signs coming from elsewhere that the UK labour market is recovering. It may not be time to open the champagne, but is it time to at least put it in the fridge?

The number of people in employment rose 301,000 in the three months to June, compared to the same period a year ago. Look at unemployment, however, and the improvement was not so marked, with this number falling by 49,000. Compare the last three month period with the previous three months and unemployment was down by just 4,000.

On the face of it, this does not seem that special. Sure the labour market is improving, but oh so slowly. UK unemployment is 7.8 per cent, surprisingly low given where the economy is, but even so, many had hoped for better.

But then again, some are beginning to make bullish noises.

Take the latest Purchasing Managers’ Indices, which suggested that during July firms took on staff at their fastest rate since 2007. According to Markit, which compiles the Purchasing Managers Indices, the improvement was led by services, although construction employment grew at the sharpest rate since 2008 and meanwhile, manufacturers boosted workforce numbers at the greatest extent for two years.

Or take the CIPD. It has just released its latest labour market survey. The report shows that the net employment balance – which measures the difference between the proportion of employers who expect to increase staffing levels and the proportion who intend to reduce staffing levels – stands at +14. This is an increase from +9 in the previous quarter and the highest figure since the recession in 2008. So far this is all pretty promising. The Bank of England says that it will not increase interest rates until unemployment falls to 7.0 per cent. If the inference from the surveys is right, it seems quite plausible that this level may be reached within a year or so, and ahead, by the way, of what the Bank of England is predicting.

Then there are wages. For over two years now, the percentage increase in average wages has been less than the percentage rate of inflation, meaning that real wages have been falling.

The latest period was no exception, but then again average weekly earnings – including bonus payments – rose by 2.1 per cent, comparing April to June 2013 with the same period a year earlier. This is the first time the growth rate has exceeded 2 per cent since late 2011. Inflation in June was 2.9 per cent, so the gap between wage increases and inflation is still quite large. There is a growing view that UK inflation is set to fall too, and many are predicting an inflation rate of 2 per cent within a few months. So if wages can carry on rising at the rate at which they rose between April and June, and inflation falls as expected, within a few months – say the beginning of 2014 – real wages may be rising.

There is a problem, however. April was a good month for bonuses. If we look at regular pay (that’s without bonuses) in the three months to June, this rose by just 1.1 per cent. Furthermore – and returning to the CIPD survey – employers do not expect wage growth to accelerate significantly. Among those employers who took part in the survey the average anticipated settlement for basic pay (excluding bonuses) in the 12 months to February 2014 was 1.7 per cent, unchanged from the previous quarter.

The UK needs wage increases to exceed inflation in order for consumer demand to rise, which will push up GDP without the need to increase debt. At the moment, consumers are buying more, but they are doing this by reducing saving, and borrowing more, which is surely not sustainable.

But then again, wages can only really increase if productivity improves. And in this respect at least there has been some good news. Output per worker had been steadily falling since early 2011, except that is in Q1, when it improved. (It improved in Q3 last year, too.) Year on year output per worker is still falling, but the extent of the fall has reduced very significantly. Data for Q2 will be out in about six weeks, and that will tell us whether the April to June period saw further improvement in productivity. If it did, we may be able to start talking more confidently about rising wages, leading to sustainable improvements in demand.

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© Investment & Business News 2013

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Beware of the TROIKA bearing gifts. The TROIKA is the collection of letters we use to describe the IMF, ECB and EU Commission and the organisations that, have clubbed together to provide money to Greece.

And everyone, with the exception of people living on Mars and members of the TROIKA, knows that the conditions imposed on Greece in return for providing more loans have caused the country to suffer economic depression. The IMF has already broken ranks, and said the TROIKA should have realised that Greek debt was not sustainable much sooner than it did, and should have agreed a haircut, in the process greatly alleviating Greek pain, at around a year earlier than it did.

Now a trio of economists – Dimitri Papadimitriou, Gennaro Zezza, and Michalis Nikiforos – have produced a model based on stock flow analysis, which suggests that Greek unemployment might rise from the horrendous 27.4 per cent level it is currently at, to 34 per cent by the end of 2016.

The lexicon is bare. Words fail. If 27.4 per cent is horrendous what is 34 per cent unemployment?

The three economists say Greece needs a kind of latter day Marshall Plan. They are right. Austerity in some sectors of the Greek economy, in particular the public sector, has to be tempered with equally significant levels of investment.

If Greece was Germany, global leaders would not agree to such austerity because they would fear the political repercussions. But this is little Greece. It may have been a superpower 2,500 year ago, but Alexander is dead, Sparta defeated, and the TROIKA vents its fury like the Titans escaped from Hades. For more see: A New Stock-Flow Model for Greece Shows the Worst is Yet to come 

© Investment & Business News 2013

What will you be doing when you are over 65, assuming that is that you are not already over that age? Do you think you will still be working? Now forward wind the clock. Let’s for the sake of argument say the date is 2035, meaning that if you are 43 today, you will be passing the 65 mark. What will things look like then?

This is perhaps the single most important underlying force at the work in the UK economy today. It may determine future growth, future prosperity, or indeed poverty. Understand this, and you are closer to understanding what is really going on beneath the surface.

According to the Office of National Statistics (ONS), between February and April this year just over one million people over the age of 65 were in work. It was the first time ever that this number topped the million mark. The ONS says the rise in the number of over-65’s working is partly down to more people staying on at work and also more people of this age group in the population.

So let’s drill down a little. In April 1992, 478,000 over-65’s were working. That was 94.2 of the population of this group. By April 2000, not a lot had changed. 457,000 over-65’s were working, or 94.7 per cent of the population of this age group. Throughout the noughties things did change, however, and by quite a lot. Between 2000 and 2013 the number of over-65’s in the UK leapt from around 480,000 to about 1.1 million. During that same period the percentage over 65 who were working rose from just over 5 per cent, to a fraction less than 10 per cent.

In 2013, the proportion of the UK population over 65 is around 16.5 per cent.

Now forward wind the clock. The ONS reckons that by 2035 the population of over-65’s will be around 17 million or 23 per cent of the overall population. Assuming the proportion of those over 65 in employment stays the same, this means that by 2035 roughly 1.7 million will be working. Given that it seems certain the proportion of over-65’s working will rise, that means by 2035 the number of over-65’s with jobs will probably exceed 2 million, and will more likely top 3 million, even more.
Is this a disaster for UK plc?

Superficial analysis says that as more over-65’s work, there will be less work for under-65’s. But that is not how it is supposed to pan out. The more people in the UK who are earning, the higher will be demand, and demand creates new jobs.

There is another point, however. The appalling performance of the stock market over the last 13 years, combined with the fragility of the housing market, means that this growing population cannot just assume their pension pots will grow at the kind of rates enjoyed by those who were saving in the 1980’s and 1990’s for example.

But is it a good thing that more older people are working and that this number is set to rise?

One way of looking at is to say consider the alternative. Would you rather live longer but work longer, or would you rather it was like the 1960s, when you retired at a younger age, but almost certainly keeled over a good deal younger too?

And here is a bit of selfishness for you. The author of this article would actually quite like it if he was still writing until the day he died, providing that day is still some time off – say when he is 110…

© Investment & Business News 2013

In April wages, including bonuses, fell by 0.3 per cent. This was a staggeringly awful piece of economic data, but was it just a one-off?

This morning data for May was out, and it was much better, with average wages rising 3.3 per cent in the year to May. During the same period, inflation was 2.4 per cent, so for the first time in a very long while, average wages rose faster than prices, meaning that average workers were better off.

There are some buts, however.

Firstly, it appears that the figures were distorted by the end of the tax year. Bonus payments were delayed until after April to take advantage of lower income tax rate. So that at least partially explains why the data for April looked so awful, but so good for May.

The ONS prefers to look at a three month periods. And in the three months to April, average wages rose by 1.3 per cent compared to a year ago. That was better than April when they rose by 0.6 per cent, but still at the lower end of what we have seen over the last few years. In other words, once again, the average worker was worse off in the three months to May, after taking into account inflation compared to the same period in 2012.

Secondly, because the end of the tax year distorted bonus payments, maybe on this occasion we should consider wages before bonuses – or regular pay as the ONS calls it. In May regular pay rose by 1.3 per cent, but in the three months to May it rose by just 0.9 per cent, which was the second lowest increase in the last 12 months.

Inflation is expected to rise over the next few months, so there is little reason to believe wages will grow faster than inflation meaning that there will be no positive growth in real wagesfor many months.

This is the flip side to better data on the jobs front. At 1.51 million, the unemployment rate in the three months to January (the latest period for which we have data) was at a two year low.

But relatively low unemployment – that is to say low considering where the economy is at – is being paid for by low wage growth. So the economy is still in a downturn, unemployment is surprisingly high given this, but look to wages for a partial explanation. This is why some say we have a problem of zombie companies in the UK, maybe even a zombie workforce, keeping low paid jobs, with low levels of productivity growth.

© Investment & Business News 2013

Twenty seven per cent! For those under 25, the unemployment rate is 57 per cent. These are staggering numbers. Spain’s government debt is out of control, not because it is wasting money, but because so few of its workforce have jobs.

Yesterday saw data on Spanish and French labour markets. The data on France was awful when measured by any normal yard stick, but in comparison to Spain it was positively brimming with optimism.

French unemployment is, in fact, now 3.2 million, compared with 6.2 million in Spain. In the UK unemployment is 7.9 per cent, or 2.56 million.

We keep hearing about how the Eurozone is slowly recovering, not that this is showing up in the data on GDP; that we just need to give the region time; that green shoots are everywhere. But look at the job stats.

Don’t compare the adjustment occurring in Spain with the UK experience under Mrs Thatcher. The Spanish experience is worse by a substantial order of magnitude.

There are structural problems with the Spanish economy – that is for sure. But what Spain, along with Greece, Portugal and the rest of the motley crew needs is massive investment.

By all means impose austerity on sectors of the respective economies. But other sectors must be recipients of a latter day Marshall Plan, or the consequences for democracy and peace in Europe will be dire.

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The question is why? Why was it that not so long ago economists were confidently predicting that average wages would rise while inflation fell?

Okay, we know why they thought inflation would fall, and let’s not go over that old ground. But why did they think wages would rise?

According to the latest data from the ONS, average wages without bonuses rose by a mere 1 per cent in the three months to February. Then, if we take into account bonuses and look at what the ONS calls total pay, we find that rose by just 0.8 per cent. So why had economists previously made such bold predictions? Were they guessing?

Even – let’s emphasis this – EVEN if the most hawkish of inflation watchers had been right, and inflation had fallen below the Bank of England’s target, it is likely that right now wage increases would still be lagging behind inflation.

As it is, in February CP inflation was 2.8 per cent. Wages in the three months to February rose 0.8 per cent on the same period a year ago. That means real wages fell by 2 per cent over the period in question. It was the biggest fall in real wages since March last year.

Many economists have argued that the first sign that the UK economy is turning will occur once wage increases begin to outstrip inflation. Well, based on the latest data, all we can say is that point doesn’t look even close.

This all begs the question: why are so many predicting a pick-up for the UK later this year and next? Are they guessing again?

©2013 Investment and Business News.

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In 2008 UK average labour costs per hour, measured in euros were 20.9. In 2012 they were 21.6 euros. That’s a rise of just 3.3 per cent.

Or let’s use sterling rather than euros as the measure. In 2008 unit labour costs per hour were £16.70.In 2012 they were £17.50, which is a growth rate of 5.2 per cent. Contrast that with Germany where unit labour costs are up 9.1 per cent. They are much higher too: 30.4 euros in 2012.

In France, unit labour costs have risen 9.5 per cent to 34.2 euros. Of course, Germany has roughly half the unemployment rate of France.

The highest unit labour costs are in Sweden: 39 euros, while Denmark, Luxemburg, Finland, Belgium, the Netherlands, and Austria all have unit labour costs over 30 euros an hour.

Of the 27 counties in the EU, 15 have lower unit labour costs than the UK. They are slightly lower in Cyprus, a lot lower in Greece (14.9 euros), much higher in Ireland (29 euros), lower by the tiniest of margins in Spain, and significantly higher in Italy (27.4 euros).

In terms of growth between 2008 and 2012, only Ireland, Greece, Latvia, Lithuania, Hungary, Poland and Portugal saw a lower growth rate.

Unit labour costs contracted in Lithuania, Hungary, Poland and –most notably – in Greece, where they have fallen 11.2 per cent.

From an economic point of view, falling unit costs are good in the sense that they provide a country with improved competitiveness. But they are bad in the sense that they are a function of productivity, and wages. That Greek wages are falling so fast may be an indication that the country is gradually becoming more competitive but the resulting depression is really rather nasty.

As for the UK, falling unit labour costs is a sign of poor productivity. But why is UK productivity so low? When you factor in networked readiness it is harder to explain. See: IT readiness: does Finland lead the world for economic potential, is the UK in seventh spot?

What the UK needs is investment. Maybe Vince Cable’s plan for a business bank is the right one. More likely it does not go anyway near far enough.

©2013 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here