So it’s all pretty good news, confounding the doom-laden predictions that Brexit would raise unemployment sharply by the end of 2016. In fact, many commentators are surprisingly downbeat about this. One reason is the one apparent blot on today’s record card: average earnings are not keeping pace with inflation, and so are again apparently falling in real terms. According to the ONS release, average weekly earnings fell in real terms by 0.4% compared with a year previously. This feeds into the story behind the push to abandon the public sector pay gap, very much in the news this week.
But we should always be wary of these ‘averages’. The labour market is an extremely dynamic environment, with people entering and leaving all the time. As I indicated in an earlier blog, if those leaving the work force are paid more highly than those entering – which is usually the case, as they are on average older and more experienced – this tends to drag the overall average down. Meanwhile those who remain in work throughout the period tend to experience a significant gain in pay, though progression up an incremental pay scale (as still happens, for example, in many parts of the public sector), through internal promotion or, very importantly, through changing jobs.
In the course of a year, many hundreds of thousands of people change jobs. When they switch between employers, a prime motive is to increase pay: the Resolution Foundation has recently shown that movers typically experience a pay increase of 7.8%, with those in their mid-20s getting perhaps double that.
Such pay increases reflect the fact that workers are switching to jobs where their productivity is higher. It is a good thing from the point of view of the economy as a whole. One reason for the slow growth in productivity since the recession has been that people have been switching jobs less frequently. Employers report difficulty recruiting in many areas. Quite why this has happened is unclear, but it may have something to do with the state of the housing market and the cost of moving. Whether you are an owner-occupier or renting, the costs of moving have increased.
If we want to encourage people to move between jobs, giving all public sector workers an inflation-busting pay increase in their existing jobs is probably not the way to go. Nor is increasing employment protection through restricting zero-hours contracts or giving full employment rights immediately on taking a job (rather than after two years), as the Labour Party wishes.
They have of course considerably greater employment protection for ‘insiders’ in France, but if yesterday’s protesters get their way and President Macron has to back down from his labour reforms, the French are likely to continue to have an unemployment rate more than double that which yesterday’s healthy figures show for the UK.