UK Employment is Better But not So Wages

“Puzzling” is the word economists use most about the UK’s recovery. And figures from the Office for National Statistics on unemployment and wages have added to the perplexing picture.

How can there be a jobs boom, buoyant spending on the high street and packed hotels and restaurants without any pressure on employers to raise wages?

All this activity has put some pressure on retail prices. The jump from an inflation rate of 1.5% in May to last month’s 1.9% was in part because shops were not discounting clothes this year as much as last year. Higher demand has encouraged rising prices.

But wages appear to be stuck in first gear. Not even the higher activity recognised in annualised GDP growth has shifted the balance in favour of workers.

There is one school of thought which says employers are still ultra-conservative. Not only are they keeping a lid on wages to maintain shareholder dividends, but also to avoid over-reaching themselves in case another crash should be around the corner.

It’s a short term policy, for sure. Yet it could feasibly continue for a while. Few workers are unionised, and in the UK’s increasingly flexible labour market, where it is almost impossible to quit a job and claim unemployment benefits, where zero hour contracts are still a feature and where self-employment is on the rise, employers have the whip hand.

Economists despair at the lack of investment, and the low productivity that follows. If only, they lament, investment was nearer 20% than the current 11%. Maybe the UK could begin to build a more sustainable and profitable future.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza