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Workers plunged into deepest pay squeeze since the Silver Jubilee

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Today (Tuesday 16th August), the Office for National Statistics have published the latest labour market figures. This month’s figures show that real wages have fallen by 4.1 per cent (on CPI measure) while the cost of living crisis intensifies.

The latest data is dominated by near double-digit inflation, which according to the Resolution Foundation’s analysis of longer-term ONS and Bank of England pay data, has brought about the deepest pay squeeze in 45 years.

It adds that with the effects of last year’s furlough adding around 0.5 percentage points to measures of annual pay growth, the true scale of Britain’s pay squeeze is even deeper than official figures suggest.

This deep real pay squeeze has come about despite robust nominal pay growth and a tight labour market.

Regular pay grew by 4.7 per cent in the three months to June, while total pay including bonuses grew by 5.1 per cent. The Foundation notes that the shrinking gap between regular and total pay levels suggests that some of the bonuses and one-off payments that have boosted total pay in recent months are now showing up in higher pay settlements, providing a longer-term boost to pay packets.

The size of the labour market has remained unchanged in recent months, with a slight fall in employment and rising inactivity undoing the recent good news on labour market participation.

While vacancy levels have fallen from record highs, the jobs market remains active, with almost a million (948,000) people moving jobs in the last three months, well above typical levels of around 700,000.

Main Points

The latest Labour Force Survey (LFS) estimates for April to June 2022 show that there was little change in rates over the quarter. There was a small decrease in the employment rate, a small increase in the unemployment rate while the economic inactivity rate remained unchanged.

The UK employment rate for people aged 16 to 64 years decreased by 0.1 percentage points on the quarter to 75.5%, and is still below pre-coronavirus (COVID-19) pandemic levels. However, the number of people in employment aged 16 years and over increased on the quarter by 160,000. The number of full-time employees increased during the latest three-month period. While part-time employees had generally been increasing since the beginning of 2021, showing recovery from the large falls in the early stages of the coronavirus pandemic, there was a decrease during the latest three-month period. The number of self-employed workers fell in the first year of the pandemic and has remained low, although the number has increased slightly during the latest three-month period.

The most timely estimate of payrolled employees for July 2022 shows a monthly increase, up 73,000 on the revised June 2022 figures, to a record 29.7 million.

The unemployment rate for April to June 2022 increased by 0.1 percentage points on the quarter to 3.8%. The number of people unemployed for up to 12 months increased during the latest three-month period, with those unemployed for between 6 and 12 months increasing for the first time since February to April 2021. This increase was partially offset by a decrease in those unemployed for over 12 months.

The economic inactivity rate was unchanged on the quarter at 21.4% in April to June 2022. The increase in economic inactivity since the start of the coronavirus pandemic had been largely driven by those who were students and the long-term sick. In the latest three-month period, there was an increase in the number of people who were economically inactive owing to long-term sickness, which was largely offset by a decrease in those economically inactive for “other” reasons.

The number of job vacancies in May to July 2022 was 1.274 million; a decrease of 19,800 from the previous quarter and the first quarterly fall we have seen since June to August 2020. Since vacancies fell to an all-time low in April to June 2020, they have increased by 945,000 in a little over two years.

Growth in employees’ average total pay (including bonuses) was 5.1% and growth in regular pay (excluding bonuses) was 4.7% in April to June 2022. In real terms (adjusted for inflation), over the year, total pay fell by 2.5% and regular pay fell by a record 3.0%. Note, we are comparing the latest period with a period where certain sectors (accommodation and food service activities, and wholesale and retail) had employees on furlough as a result of the winter 2020 to 2021 lockdown. Therefore, a small amount of base effect will be present for these sectors, but not to the degree we saw when comparing with periods at the start of the coronavirus (COVID-19) pandemic.

Sector Response

Nadhim Zahawi Thumbnail

Chancellor of the Exchequer, Nadhim Zahawi said: 

“Today’s stats demonstrate that the jobs market is in a strong position, with unemployment lower than at almost any point in the past 40 years – good news in what I know are difficult times for people.

“This highlights the resilience of the UK economy and the fantastic businesses who are creating new jobs across the country.

“Although there are no easy solutions to the cost of living pressures people are facing, we are providing help where we can. We are delivering a £37 billion package of help for households through cash grants and tax cuts so people can keep more of what they earn.

“And whilst we cannot completely shield everyone from these global economic shocks, we are targeting this support on millions of the most vulnerable people in our society: those on the lowest incomes, pensioners and disabled people.”

Ben Harrison, Director of the Work Foundation at Lancaster University, a leading think tank for improving work in the UK:

“Ahead of next week’s energy price cap announcement, there is more bad news for workers as real wages fell by a record 3% on the year. With inflation at 9.4%, and the Bank of England predicting it will peak at 13% in early 2024, people across the UK are facing more tough decisions as their regular pay fails to keep pace with rising prices.

“The six million workers in severely insecure jobs will be hardest hit and are already running out of options. Many have already tried to find more hours work and cutback spending but continue to face great uncertainty.

“With fuel bills about to soar again, hardworking families cannot wait any longer. The Prime Minister must return from holiday and agree a comprehensive package of support with the two Conservative leadership candidates.”

* Figures quoted on work insecurity are from the Work Foundation’s UK Insecure Work Index (May 2022).

DWP Minister, Julie Marson

DWP Minister, Julie Marson said:

“Today’s figures show that the jobs market remains resilient with more people on payrolls and unemployment remaining at a near record low, despite the challenging economic circumstances we face.

“We recognise people are struggling with rising prices and our work coaches stand ready to provide practical help for people to increase their earnings even after they’ve secured a job.    

“Being in stable employment is one of the best ways for people to get on, but we’re also providing £1,200 direct payments for millions of low income households as part of our £37bn package of support to help with the cost of living.”

Stephen Evans, Chief Executive, L&W

Stephen Evans, Chief Executive of Learning and Work Institute, said:

“The pain from the cost of living crisis is deepening with real regular wages continuing to drop at their fastest rate on records dating back to the start of the century, driven by rising inflation. Things will get tougher for households with the sharpest rises in the energy price cap still to come, perhaps to over £4,000 per year. The urgency for further emergency support from the Government grows.

The UK also faces a recruitment crunch with employers struggling to fill all their roles, despite 1.9 million people either starting work or changing jobs in the last quarter. This is driven by higher numbers of over 50s and people who are long-term sick leaving the labour market.

To tackle these twin challenges we need immediate help and a plan for growth, including better employment support for people who’ve left the labour market. Otherwise, hardship will grow and our economy will be smaller than it needs to be.”

TUC General Secretary Frances O’Grady
TUC General Secretary Frances O’Grady

TUC General Secretary Frances O’Grady said:  

“Everyone who works deserves financial security.

“But with the Bank of England predicting the worst decline in real pay for 100 years, energy bills soaring and a recession on the horizon, millions of working families are worried they won’t be able to keep their heads above water this winter.

“We need action from ministers now. They should cancel the increase to the energy price cap. And they must do far more to get pay rising – starting with boosting the minimum wage this autumn and giving public sector workers a decent pay rise.” 

Zero-hours contracts

Commenting on the latest data on zero-hours contracts also published by the ONS today (Tuesday), which show more than one million people are employed on these terms, Frances added:  

“The government promised a high skill, high wage economy.

“But too many workers are stuck on insecure contracts that give them and their families no security.

“As the cost of living crisis escalates, the case for banning hated zero-hours contracts is stronger than ever.”

Nye Cominetti, Senior Economist at the Resolution Foundation

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“Near double-digit inflation has brought about the biggest pay squeeze in Britain since 1977 as pay packets shrink by around 3 per cent. The scale of this pay pain is even deeper than official figures suggest too, as pay growth estimates are still artificially boosted by the effects of the furlough scheme last year.

“This squeeze has come about despite robust pay growth and a lively jobs market, with pay settlements strengthening slightly, and almost a million people moving jobs in the last three months.

“There is no evidence yet of big wage-price spirals, rising unemployment, or a major return to work brought about by falling household incomes. Whether these trends materialise in the months ahead will help determine the scale and distribution of the latest economic crisis.”

Walid Koudmani, chief market analyst at financial brokerage XTB comments:

“Today’s Average Earnings Index showed a fall in real wages at a record level as inflationary pressures and the cost of living crisis continue to reduce buyer spending power. This further highlights the importance of a suitable strategy by the Bank of England and government who may attempt to normalise the economic situation despite increasing recession concerns.

“The economy continues to be in a difficult spot as it remains stuck between serious supply and logistics concerns and attempting to rebound from historically low interest rates. Meanwhile, employment figures showed a slow decrease compared to the previous three month period which corresponded to a slight increase in the unemployment rate.

“All things considered, this is troubling news as it could indicate a slowdown in the job market which coupled with rising prices may lead to a serious drop in demand and ultimately impact most aspects of the economy.”

Rebecca McDonal­­d, Chief Economist at the Joseph Rowntree Foundation, said: 

“Inflation, which has risen to 10.1­­% today, is eating away at people’s pay and leaving millions adrift in a cost of living crisis. No one can disagree this is a national emergency. Today’s sobering reading means the next few months will be profoundly more difficult for low income families almost certainly experiencing a higher degree of inflation themselves.

“People are looking for a sign that help is on the way. Yet the government doesn’t seem to have grasped the full scale and urgency of this situation.

“Energy bills for low-income households are expected to be £1,800 higher this year than last, and other costs such as food are expected to rise by £1,000 at the same period. That’s why JRF and 70 other charities called on the UK’s next Prime Minister to pledge the £1,200 in core support to households on means-tested benefits should be at least doubled.

“It’s not just rising energy bills that are squeezing low-income families. Food prices have risen by 12.6% over the last year. So while today’s double digit analysis may come as a shock, it’s no surprise to people who can’t afford the same essentials they could a year ago.

“Planning for a substantial support package, at least double what’s been offered, needs to start immediately. Without one, vulnerable people will face a catastrophe on a vast scale when winter sets in.”

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