BBC analysis of labour market statistics misses the point

PEF Economist Michael Davies writes.

There are no big surprises in this month’s round of labour market statistics from the ONS. Very little has changed since August, when I wrote about the UK’s dismal wage and productivity growth – ultimately a result of labour market power imbalances and underinvestment.

Today, I just want to say a brief word about the uncritical interpretation of these statistics in the media, using the BBC’s article on the new figures as an example. The headline is “wages accelerate to fastest pace since 2008”, and the introduction reads:

Wages are continuing to rise at their highest level for nearly a decade, the latest official Office for National Statistics figures show.

Compared with a year earlier, wages excluding bonuses, were up by 3.3% for the three months to October, the biggest rise since November 2008. Average weekly wages are £495 – the highest since 2011, when adjusted for inflation.

The number of people in work rose by 79,000 to 32.48 million, a record high. That is the highest figure since records began in 1971.

Unemployment increased by 20,000 to 1.38 million, although the margin of error is 70,000 and the total is still lower than a year ago. The number of unemployed men increased by 27,000, while the number of unemployed women fell by 8,000.

The reason both employment and unemployment have increased is a result of the UK’s rising population and more people joining the labour force, such as students and older people.”

First, it is nominal wages that are growing at their fastest rate for nearly a decade. But real wages – wages after inflation – are what really matter, as they tell us far more about workers’ living standards.[1] Here, the picture is much more dismal. Real wages grew by just over 1% in the past year – slower than in most of 2015/16, and well below 1945-2007 average of 2.5%.[2]

Indeed, this meek growth has not been enough to compensate for the falls in real wages during and following the recession, conferring onto the UK the dubious honour of being one of the only OECD countries (along with Greece) to have experienced negative wage growth since the Global Financial Crisis (GFC). So yes, weekly wages are at their “highest” since 2011, but this is not cause for celebration. If wage growth had kept up with the WW2-GFC trend, wages would be approximately ~28% higher than their current levels.

Instead of explaining this broader context in their introduction to the piece, the BBC decided to note that the number of people in work is at its highest since records began in 1971: unsurprising, given that the population of the UK has steadily risen by 11m people over this time period. Choosing to devote space to such a facile observation is questionable at the very least.

Though the BBC did add critical commentary from Margaret Greenwood, Frances O’Grady and others over the course of the day (though without timestamping these contributions/noting that the article had been edited ex post, I might add), the fact that the earliest, and likely the most-read version of the BBC article contained no such counterpoint is serious cause for concern.

The overarching issue is that wage and productivity performance has been so dismal over the past decade that it allows the Government to pass off news that would be considered miserable by any reasonable standards as fantastic. Employment Minister Alok Sharma, for example, cited “wages outpacing inflation for the ninth month in a row” as a sign of “the enduring strength of our jobs market”.

The fact that avoiding real wage falls for a grand total of nine months – outside of recession time, no less – is touted as a mark of enduring strength highlights that something is seriously wrong with the UK labour market. This is why continuing to draw attention to the wider context is so important.

[1] One commentator pointed out that higher nominal wage growth does benefit indebted households; this is true, but it is stagnant real wage growth that is driving the increase in consumer debt in the first place.

[2] Using the ‘real consumption earnings’ time series from the Bank of England’s A Millennium of Macroeconomic Data.

Photo credit from previous page: Flickr / Ali Craigmile

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