By Valentina Magri
All that glitters is not gold.
ONS data released on August 13th for the second quarter of 2014 shows that Britain currently enjoys a record low unemployment rate at 6.4 per cent and an increase in employment (+167,000 persons). The jobs market seems to also be improving for youngsters aged 16-24; their unemployment rate fell from 19 to 16.9 per cent. In addition, the British economy is in better shape than any of its other European counterparts, which of course means everything is going to be all right!
Indeed, there are four reasons to wake you up from this “midsummer’s night dream”.
Coined by John Philmott, director of the Jobs Economist consultancy, paymageddon describes the real wage decline in the UK and its potential for economic catastrophe. The latest ONS figures report a 0.2 per cent fall in wages, including bonuses, while the average earnings growth (excluding bonuses) shrank from 1.2 per cent to 0.6 per cent: it is the lowest rate on record.
The newest inflation report by the Bank of England (BoE) released on August 13th forecasts a wage growth estimate for 2014 of 1.25 per cent, while the inflation will be at 1.9 per cent. The Chartered Institute of Personnel and Development thinks that wages are likely to remain below inflation until next year.
Paymageddon is also one of the four risk factors that may derail the English recovery according to the Bloomberg economist Jamie Murray, this situation is due to: margins rebuilding by the companies after the downturn; weak bargaining power of workers, given the labour market slack; productivity growth.
2) Weak productivity
In the July Economic Review, the ONS reported that the weakness of real wage growth is consistent with the weakness of productivity. In fact, output per hour worked in the UK fell sharply during the Great Recession and has remained weak since the start of the recovery.
There is a twofold explanation for this problem: investment cuts and increasing level of employment. Indeed, weaker investment means a smaller capital stock over time, since there is no replacement of older assets.
In the meantime, a growing number of workers mathematically reduces the quantity of capital available per unit of labour input (“capital shallowing”). This explanation is supported also by a recent paper by the Centre for Economic Performance and by ONS figures. Data show that industries with a larger stock of capital per worker (like mining & quarrying, real estate, electricity) tend to enjoy higher productivity, while it happens the opposite if it not just the case (accommodation & food services; professional, scientific & technical activities sectors).
3) The workaholic trend
The Morgan McKinley UK Working Hours Survey discussed in this newspaper by Joe Mellor states that nearly three-quarters of the professionals work longer than contracted working time and that two-thirds of them feel obliged, or very obliged, to work in excess. The typical workaholic is a man (76.1 per cent, compared to 67 per cent of women) in senior permanent roles (84 per cent). The tendency of working too much not only creates a work-life (im)balance (as 74.1 per cent of the respondents admit), but also health risks. The Chartered Society of Physiotherapy (CSP) warned that overwork leads to back and neck problems, together with stress-related illness. Researchers from the University of Pennsylvania discovered that patients are more likely to suffer from hospital infections if their nurses overwork.
4) The Beaten Generation
This definition was given for the first time in an article published by “The London Economic” and it points out today’s youth, “beaten” by the crisis. A recent report by the Institute for Fiscal Studies (IFS) found that between 2007 and 2008 and 2012-2013, real median household income fell by 13 per cent among people aged 22-30 due to diminishing employment and wage levels.
The income fall was greater for youth living alone, with respect to those living with their family (17 per cent vs. eight per cent). After deducting housing costs from income, London and Northern Ireland suffered from the biggest falls in real median income. This situation is obviously reflected on home ownership: just 21 per cent of people born in mid-1980s have their own house, compared with 34 per cent of the mid-1970s cohort and 45 per cent of the mid-1960 cohort.
Chris Goulden, head of poverty research at the independent Joseph Rowntree Foundation believes that “policy makers should be aware that living standards have fallen for rich and poor, with the youngest households faring particularly badly”.