United Kingdom: Unemployment rate remains at multi-decade low in the July-September period
November 15, 2017
Jobless claims rose by 1,100 in October according to the Office for National Statistics (ONS), compared to a revised increase of 2,600 in September (previously reported: +1,700) and undershooting analysts’ expectations.
The unemployment rate—derived from a different survey—remained at 4.3% in the July-September period (the latest period for which data is available), matching market expectations and marking the joint-lowest rate since 1975. The UK labor market thus remains highly robust, with the unemployment rate below the Bank of England’s estimate of the equilibrium rate. The economic inactivity rate picked up slightly compared to the April-June period to 21.6%, but was lower than in the same three-month period of the prior year. In addition, employment fell compared to the April-June period, ending two years of almost uninterrupted employment growth and pointing to a labor market losing some fizz towards the end of the year.
Despite a tight labor market, the pay squeeze is continuing unabated. In the July-September period, total pay fell 0.4% compared to the same period last year in real terms, marking the sixth consecutive monthly fall. As a result, workers are still worse off in real terms than before the advent of the financial crisis of 2008, marking a lost decade of pay growth. Recent subdued wages are likely due in part the change in the composition of the workforce, with the rise in employment over the last 12 months being largely in low-wage industries. Another reason is poor productivity growth in recent years; productivity is now barely above its pre-crisis peak, despite strong growth in Q3.
With limited slack in the labor market, earnings should gradually pick up later in 2018. That said, if employment continues to fall in the months ahead this could reduce the pressure on employers to raise wages.
Author: Oliver Reynolds, Economist