Why the falling unemployment rate isn’t all good news

This morning we found out the number of people who are unemployed has fallen to 2.08 million, down 132,000 from April to June, compared with the previous three months. This is great news for the UK, as one of the key measures of a growing economy is a falling unemployment rate.

However, there are other figures that suggest the economy is not doing as well as we think.

Wages are falling

The Office for National Statistics, which released the employment figures, also released data showing our wages have fallen 0.2% on the previous year. If you take out people’s bonuses, pay has risen just 0.6%. Not only is this a fall in real terms (taking inflation into account) but it’s also the slowest growth since records began in 2001.

Pay and inflation

In this graph, at times when the pink line is below the black line, wages are going up by less than the cost of living. As you can see, it’s most of the time.

The Bank of England has revised down its forecasts for wage growth too, meaning it doesn’t think our wages will go up much soon. It reckons:

  • In 2014, wages will rise by just 1.25%, down from 2.5% it estimated previously.
  • In 2015, wages will rise by 3.25% in 2015, down from 3.5%.
  • In 2016, wages will rise by 4%, up from 3.75% previously.

Lower productivity forecast

The BoE has also lowered its forecasts for the UK’s productivity. BoE governor Mark Carney said it was due to firms taking on cheap labour rather than investing in new equipment. He added when wages rise, he would expect to see productivity rise too. However, due to low wages, that is taking longer than the BoE predicted.

Productivity is now 17% lower than it would have been if the trend before the recession had continued.

Do you agree? Tweet me your thoughts @robynvinter

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