Tight labour market boosts job security but not pay, says Resolution Foundation

By agency reporter
August 15, 2018

Unemployment has fallen to a forty-three year low but pay growth remains stubbornly weak, the Resolution Foundation said on 14 August 2018, in response to the latest ONS labour market figures.

Unemployment dropped to four per cent, driven by falls for those under 24, who accounted for almost two-thirds of the decline since March. The number of people on zero-hours-contracts also fell by over 100,000 to 780,000, the lowest level since mid-2015. Adding to the sense that the labour market is rapidly tightening, the number of EU migrants employed in the UK fell for the first time since 2010.

However, while the tight labour market is starting to have an impact on job security, it is not yet boosting  pay. Before taking inflation into account, pay grew by a relatively tepid 2.7 per cent in the year to June. Between 2001 and 2008 pay growth was always above three per cent: since the crisis, pay growth has never risen above this level. The Bank of England’s unanimous decision to raise rates two weeks ago suggests they believe this weak performance could be the new normal. If this is the case, then real pay growth will increasingly be at the mercy of the pace of price rises; after accounting for inflation pay growth was only 0.4 per cent.

Stephen Clarke, Senior Economic Analyst at the Resolution Foundation, said: “While there is little evidence of any let-up in the UK economy’s ability to create jobs, this is not yet translating into faster pay growth.

“On the one hand we find ourselves in the welcome situation in which unemployment continues to fall, propelled by moves into employment by younger workers. There was also the first noticeable decline in zero-hours-contracts. However, while the unemployment rate continues to fall to near-historic lows, inactivity has ticked up and pay growth appears stubbornly stuck at levels far below those before the crisis.

“The result is a labour market that appears fundamentally different to that which existed before the crisis.”

* Resolution Foundation https://www.resolutionfoundation.org/

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