It’s been repeatedly mentioned in the news that unemployment is at its lowest rate, but is there any truth to this? We previously looked at the state of the UK economy, and what it would mean to you. But we live in a world where an employment rate is a misleading statistic, so we thought we’d dig a little bit deeper into this and give you the full facts.
Unemployment was at its lowest point
Many of us are enjoying a period of low unemployment, despite fears of Brexit looming overhead. It was announced by the Office for National Statistics that the employment rate in the UK had hit 74.8 percent in April – the highest rate of employment since 1975 – and finally back to the employment levels that were present before the 2008 financial crash.
Much of this employment is thanks to people now being declared as self-employed. Many that work in the gig economy are required to register as self-employed, including those who work for Uber, Deliveroo and City Sprint.
Those registered as self-employed now makes up 15 percent of the total workforce. People who are beyond retirement age have also helped increase the total numbers of people currently in work in the UK too.
The gig economy is something that hasn’t escaped the eyes of some Labour MPs. Debbie Abrahams, Shadow Work and Pensions Secretary, said in a Labour press release that she was
“deeply concerned that millions remain in low paid, insecure work.”
The fact that there has been such a rise in workers in the gig economy could highlight that there is a lot of uncertainty in the current job market, as well as a lot of instability. However, it could also be that many are choosing to be their own bosses, rather than relying on other people.
However, some of these stats can be misleading. Just because the unemployment rate show’s that is on the rise, does that necessarily mean that we are all better off?
Wages are falling
It turns out that we’re not that much better off, actually. This rise in the employment rate has not done anything for wages. In fact, wages are actually falling.
Real wages are falling the quickest pace for nearly three years, thanks to small pay rises coupled with high inflation rates.
The average pay packet has only increased by 1.7 percent between February and April this year, compared to the same period last year.
When you compare that with the inflation rises this year, it’s not hard to see why many households are feeling the pressure. Inflation rose by 2.7 percent in the year to April, emphasising the fears of many that the British economy is slowing down.
The Office for National Statistics said yesterday that
“Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.1% including bonuses, and by 1.7% excluding bonuses, compared with a year earlier,”
Stephen Clarke, the economics analyst at the Resolution Foundation, said:
“Britain is in the middle of a pay squeeze that is far deeper than anyone expected. What’s most concerning is that while inflation continues to rise, wage growth is actually weakening and making the household income squeeze even tighter.”
“The sharp contrast between our terrible record on pay and strong jobs performance shows that the currency-driven inflation we are experiencing is not feeding through into wage pressures and is simply making us all poorer instead.”
When looking at the average paycheck between now and 2008, the results are shocking. If you adjust for inflation, British workers are actually earning £15 less a week, after tax and deductions, than they were in March 2008.
This rise in inflations and falling wages has really put the pressure on households. Many are finding that they have to do more with less, as their paychecks do not go as far as they once did. Many are also finding that shops prices are rising, as the value of the pound has plummeted, causing the cost of goods to be higher in stores.
Some economists have predicted that the pay squeeze will intensify in the coming months. They have warned that inflation will rise above 3 percent, whilst many firms try to limit pay rises and find that their own costs are rising.
All of this could lead to the economy weakening, as this squeeze hits consumer spending – the key driver of economic growth since the financial crash.
But the employment rate is predicted to fall
However, falling wages aren’t the only thing to look out for. It is expected that the UK employment rate will soon slip into reverse and start to decline.
The Organisation for Economic Co-operation and Development (OECD) has warned that they expect the employment rate in the UK to fall during the next twelve months, from 66 percent at the end of 2016 to 65 percent in 2018.
The reasoning behind thing was that slow economic growth, a result of rising inflation, will cause employment rates to start to slow and, eventually, reverse.
In an accompanying note, the OECD said:
“UK growth will ease as rising inflation weighs on real incomes and consumption, and business investment weakens amidst uncertainty about the United Kingdom’s future trading relations with its partners.”
They also advised that the Brexit negotiations may “require some major labour market adjustments”, especially when it involves areas such as improving productivity growth, as well as ongoing skills training.
Will this really affect us all badly though? Not as much as we might think. The OECD forecasts would actually still leave the UK well above the OECD average. The OECD also predicted that employment rates will continue to grow to 61.5 percent by the end of 2018.
So it’s not all doom and gloom! But what do you think? Are you worried that you might soon be unable to pay your bills? Are you experiencing the tightening of your household budgets as a result of falling wages? Let us know in the comments below, or tweet us @CashLadyUK.