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It mostly covers my work as UNISON Scotland's Head of Policy and Public Affairs although views are my own. For full coverage of UNISON Scotland's policy and campaigns please visit our web site. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 13 August 2014

Wage growth is needed for a sustainable economic recovery

There are still some very mixed messages on the economy in the latest batch of reports.

Scotland's economy continued to strengthen over the first half of the year, with a forecast to of the strongest year of growth since 2007, according to the Scottish Government's latest State of the Economy report. Output expanded by 1% in the first quarter of 2014, moving beyond pre-recession levels, and business surveys indicate that expansion has continued in the second quarter of the year.

The latest retail sales figures for Scotland increased in the second quarter but at a slower pace than Great Britain as a whole. Data indicated that sales volume grew by 0.8% between April and June and on an annual basis, they were up by 2.9%. In comparison, retail sales in Great Britain increased by 1.6% during the second quarter, and by 4.5% annually.

However, the National Institute for Economic and Social Research (NIESR) said Britain is growing at its slowest pace in a year, following news that the manufacturing sector is performing less strongly than the City expected. NIESR believed the economy expanded by 0.6% in the three months to July, down from 0.8% in the three months to June. Their estimates come after ONS released figures showing manufacturing lagging well behind the service sector in its ability to recoup ground lost during the "great recession" of 2008-09. The ONS said that output from UK factories remained more than 7% below its pre-recession peak. The strong pound is also a concern for exporters.

Increasing growth is also having little impact on wages. The FT highlights that very few have increased the starting salaries they offer, denting hopes for a recovery in wages after six lean years. Just 2% of the 1,000 employers surveyed by the Chartered Institute of Personnel and Development reported a significant increase in starting salaries. The organisation’s survey of 1,000 employees showed the median pay rise this year was just 2 per cent, down from 2.5 per cent in 2013. The summer Labour Market Outlook (LMO) report also warns that wage growth is expected to remain weak, even though output is growing strongly and the jobs market is buoyant.

Further evidence comes from today's ONS Labour Market statistics. Unemployment in Scotland has fallen by nearly 1% in the last quarter with significantly bigger reductions for women than men.

Irritatingly, there is again no Scottish wage data, but UK data shows that average wages excluding bonuses rose by 0.6% in the year to June, the slowest rise since records began in 2001.

Low average wage rises are an indication of the level of so-called "spare capacity" in the economy. This is the Bank of England's measure of the extent to which the UK economy is underperforming, as a result of a lack of business investment either in hiring new staff, technology or machinery. It is also an important factor in their advice on the timing of any interest rate rise. There is some, albeit outdated, evidence that the wages of full time workers are rising faster than average wages. This might indicate a further shift to part time work.

Francis O'Grady at the TUC sums this up well, "The combination of rising employment and falling pay growth suggests the economy is very good at creating low-paid jobs, but struggling to create the better-paid work we need for a fair and sustainable recovery. Self-employment has been responsible for almost half of the rise in employment over the last year. The fact that self-employed workers generally earn less than employees means our pay crisis is even deeper than previously thought, as their pay is not recorded in official figures. Falling unemployment is always welcome – particularly for young people who are finally starting to find work – but unless the quality of job creation increases Britain’s living standards crisis will continue and people will be locked out of the benefits of recovery."

Overall, it does appear that the economy is recovering slowly. However, better employment numbers still reflects insecure and part-time working. Most importantly, wages are not increasing and that is an essential element of sustainable economic growth.



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