IIBN study mentioned in Evening Herald, Oct 23

In late October 2014, I spoke in Bristol to give a presentation on Britain’s economic outlook: the trend I had been following was confirmed, as according to the IMF, unemployment figures declined from an average of 7.6% in 2013 to 6.3% in 2014, and may reach 5.8% in 2015.

Around that time, I read a statistic that said employment in the UK was back to pre-crisis levels. A few days later, as I was taking a stroll through Hyde Park, I saw a “Britain Needs a Payrise” rally.

Now you might think that if unemployment levels are down, and employment levels are back to where they were, we have come full circle. The rub is that real wages, adjusted for inflation, are 5% lower than where they were.

Emerging from an employment crisis follows several stages. It starts off with people just wanting to stay in their jobs, and they may sustain a paycut if this ensures their job remains secure. Then the company increases the number of hours that they give their staff because, as the economy picks up, there’s more work to be done. Then the company increases the number of staff as it grows in confidence of a greater, more sustainable pipeline of customers. A late step in this process is an increase in the price of labour, as the supply of it decreases and the pursuit of talent becomes more competitive.

Employment and unemployment figures are not communicating vessels: one does not minus the other. As is to be expected, a number of people already in employment who were working part-time are going full-time and this change is not reflected in those raw figures. And as the recession is ending, those people who are self-employed by necessity rather than choice will also be growing the ranks of the newly employed, without impacting the unemployment figures. (As a side note, the UK is witnessing the highest level of self-employment in 40 years.)

Another thing to take into account is that the UK, at 0.7% growth per annum, is one of the fastest growing economies in the world, which is going to attract new people. This is accompanied by a structural shift: there has been a dramatic increase in the number of people over 65 in the workforce; a 60% increase on 2008 levels, to be specific. As a result, there is a greater supply of labour: workers are attracted to a growing economy, and existing workers are staying on for longer.

As for older workers, this trend is also underpinned by the increase in life expectancy: people are healthier for longer. And companies are happy to hold on to wise, experienced collaborators.

This is less onerous on employers, since less skill equals lower wages. But it also means that the increase in employment hasn’t had the impact on the UK economy that one might have desired. So if the economy needs another, impactful, boost, an increase in real wages will be an obvious way to get there.

Why hasn’t this happened yet? Employers might be more inclined to give raises if they felt they would lose very good employees, but at the macro level, both the supply of labour, and the demand for it have increased. As a result, the balance of power in the competition for labour hasn’t shifted as much as one might expect.

An underlying factor is that there is a situation when raises are naturally negotiated, but, due to the trends described above and people holding on to their jobs, this situation hasn’t arisen as frequently yet. And this most natural time to negotiate, not (strictly speaking) a raise, but a wage, is when people move jobs.

We might well see that happen as recovery continues and employees move jobs faster. Besides, a recent IIBN survey of its members (see image) highlights that some employers are conscious of the sacrifices their staff have weathered in the last few years and are seriously considering rewarding staff loyalty, to retain talent that might become more difficult to source in the near future.

Perhaps it’s time for you to think about how these new positive trends may affect you and your career path?

This article was first published in the November 5 print edition of the Irish Post.

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