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0.4% Annual Pay Growth! Is This As Good As It Gets?

Today’s job figures yet again reveal supposedly good news about the state of the UK labour market. The number of people in work remains at a near record high while the unemployment rate was at its lowest since the mid-1970s.

Many have noted the long-awaited return of real wage growth with the BBC and the Financial Times running similar headlines celebrating the fastest wage growth in ten years (more on this later).

Workers from McDonalds, TGI Fridays, Wetherspoons, Uber and Deliveroo recently held a joint demonstration in London to demand a fairer deal. In the hospitality sector, more than one in five workers is on a zero-hours contract. Across the rest of the UK economy, only around one in forty are on a zero-hours contract. Weekly median earnings in hospitality are little over half what they are across the rest of the economy.

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Firstly, when it comes to wage growth, headlines that declare UK wage growth to be the fastest in 10 years (BBC) or since the financial crisis (the FT) are very misleading. While it is true that nominal pay has climbed above 3 per cent for the first time in almost a decade, what really matters for people’s standard of living is real pay. That is wages that account for the rate of inflation.

The graph below, which is lifted from today’s Office of National Statistics bulletin, clearly shows that real pay growth was much higher throughout much of 2015 and 2016 than it is currently. The sharp drop-off that occurs from the end of 2016 stretching into 2017 was the result of inflation triggered by the vote to leave the European Union.

What the headlines don’t tell you is that real average earnings are still lower than they were before the financial crisis. On current measures, we are still worse off to the tune of £12 a week than we were pre-crisis (the measure of inflation used in these calculations has been criticised so the £12 a week figure is likely to be overly generous).

While the uptick in pay is clearly welcome, it should be noted that it comes off the back of a truly lost decade in terms of pay growth. Further still, with so much uncertainty surrounding the final Brexit deal, huge questions remain about the UK’s future economic trajectory.

The continued talk of record levels of employment belies the lived reality for many in the UK labour market. The 2017 Skills and Employment Survey, released earlier this month, highlighted some deep-rooted malaises for many UK workers. Almost one-third of respondents said that they had to work at high speeds ‘all’ or ‘almost all’ the time.

We highlighted similar findings in our annual survey of workers earlier this year which found over half of UK workers had noticed an increase in stress in the workplace over the previous 12 months. A leading professor behind the study claimed that workers are “running faster and faster just to stand still.”

Many of these issues were brought to life in a series of recent rallies organised by workers and unions across the food and hospitality sector. In a day of action organised by Unite the Union, War on Want, the Bakers, Food and Allied Workers’ Union and a host of student and young workers, exploitative employers were called out for violating a whole host of workers’ rights.

Workers are calling for an introduction of a £10 minimum wage and the right to join a trade union. The Institute of Employment Rights’ Manifesto for Labour Law, adopted by the Labour Party, has advocated for the introduction of a ‘single employment status’ that would bestow full rights to all workers from their first day on the job.

This is just one example of the precarity and insecurity that is rooted in the UK labour market. Given the fanfare that has been made about today’s 0.4% annual real wage growth, it is important to bear in mind that the UK labour market continues to lock many out of a life of dignity and a decent standard of living. This is without even mentioning the possible impact of Brexit.