Wage woes today and joyless jobs market tomorrow

After inflation, real pay (including bonuses) fell by 2.5% and regular pay, excluding bonuses, was down 3%. It’s another record drop in real regular pay. Before inflation, total pay (including bonuses) grew 5.1% in the year to April-June and regular pay was up 4.7%.

In the public sector, total pay was up just 1.8%, compared to 5.9% in the private sector. The unemployment rate rose slightly and the employment rate dropped back, while vacancies fell for the first time in two years.

The ONS has released employment and wage data for the year to April-June: UK Labour Market: August 2022 – Office for National Statistics (ons.gov.uk)

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “We’re facing wage woes today and a joyless jobs market for tomorrow. There was another record plunge in real wages, as employers struggled to keep up with runaway inflation. Meanwhile, early weakness in the jobs market could be a sign of even more pain to come. We’re all going to be worse off, so we need to make plans.

We’ve seen weakness creep into the employment figures for the first time in a long time. The rise in the unemployment rate, fall in the employment rate and drop in vacancies aren’t dramatic, but they’re a change in direction, and may well spell more trouble ahead. The threat of recession is never far from people’s minds, and the fall in GDP in the second quarter of the year raises the risk we could be in recession right now. Wobbles in the job market are another sign of even tougher times ahead.

Wages plunge

Wages dropped even further behind inflation in the year to June, and with inflation continuing to climb, we can expect this to continue for the foreseeable future. It’s easy to see why, because few employers can stretch to double-digit pay rises when the price of everything else is going through the roof too. So with inflation predicted to peak above 13% this year, we can expect things to get worse before they get better.

In some industries, the overall figures are obscuring even more pain. Public sector growth was just 1.8% (compared to 5.9% in the private sector). It means 5.72 million public sector workers face horrible real pay cuts, and they’re not alone. Pay in manufacturing is up just 4.1% – just over half the rate of inflation at the time. Even the business services and finance sector and construction – both at 6.3% – fell behind inflation at the time of 8%. The wholesale, retail, hotels and restaurants sector saw pay rise 7.7% – but this is affected by the fact that a year ago there were more people in this sector on furlough, and therefore earning less than usual.

Bonuses also made a big difference, because they’re still at relatively high levels. It’s why total pay is rising at roughly the same level as in 2009 once inflation is taken into account, while pay without bonuses saw a record fall. It means those in jobs and industries where bonuses aren’t part of the package are facing even bigger challenges.

Inflation doesn’t hit us all equally either. The Institute for Fiscal Studies found that right now the poorest fifth of earners face inflation of 10.8% while the richest fifth face price rises of 8.5%. The gap will grow by October, so that the poorest fifth have inflation of 17.6% and the richest fifth 10.9%. It means that the lowest paid are seeing their income fall even further behind the price rises they face personally – and that things will get even tighter in October.

The cost-of-living payments were initially supposed to close the gap for those on the lowest incomes in October, so that when they were added into pay and benefits, their income was broadly flat. However, this was calculated in May and the world has changed dramatically since then, so that everyone is worse off. The IFS calculated that an out-of-work single parent will be £460 poorer, an average earner £760 worse off and the top quarter of earners £1,440 worse off.

There’s still the possibility that the government will step in. Both candidates for Prime Minister have pledged some support with energy bills. The problem is that right now we don’t know who will be in the post in October – let alone exactly what they plan to do, or when. It means we need to take steps now to prepare for the worst. Now is the time to consider whether there are any energy-saving steps we haven’t taken, and whether there is anywhere else we can cut any costs at all. By this stage in the crisis, it’s incredibly difficult to squeeze our spending, but we need to do whatever we can to keep our heads above water.

Other figures from the release

  • Job vacancies fell for the first time since June-August 2020 – down 19,800 to 1.274 million.
  • The number of full-time employees reached another record high. In July it was up 73,000 to 29.7 million.
  • The employment rate in April-June was 75.5%, 0.1 percentage point lower than the previous month and 1 percentage point below pre-pandemic levels.
  • The unemployment rate was 3.8%, up 0.1 percentage point from the previous quarter, but still down 0.2 percentage points from before the pandemic.
  • The number of people unemployed for up to a year rose, and those unemployed for 6-12 months rose for the first time since April 2021. Those unemployed for over a year fell slightly.
  • The economic inactivity rate was unchanged at 21.4%. However, it was still up 1.2 percentage points since the start of the pandemic. In the previous three months there was a rise in those who are inactive because of long term sickness.
  • Job to job moves have slowed, but remain higher than usual.
  • The redundancy rate fell by 0.6 per thousand employees to 1.9 per thousand employees.