Features

Good news! Wages are finally rising for everyone

For the first time in a decade, wages are rising for young as well as older workers. Merryn Somerset Webb looks at what this means, and where it might lead.

180917-wages

Wages are now rising for those entering the jobmarket

We've been predicting that the next surprise in store for the global economy is to be fast-rising wages.

Employment numbers across the UK are high (unemployment is at a 40-year low of 4%) and we've been hearing from recruitment consultants for some time that hiring is harder and harder and that, when they do move people, they are getting them hefty pay rises (an average of 19% one told me last week).

In the US there are 11 job vacancies for every ten workers, and we see increasing evidence of firms looking harder for good staff think the big tech companies removing the need for a university degree from their hiring criteria.

Other examples turn up every day in the MoneyWeek team's inboxes. I have just received a press release from a global building materials company explaining how it is "leveraging technology...to meet the growing need for development in the age of labor shortage."

In the last few weeks, all this has begun to turn up in the numbers. US average hourly earnings are now rising at 2.9%. In Japan, summer bonuses came in at their highest level since 1991 and, say Capital Economics, wages are growing much faster than output (so the share of the pie going to labour is rising). Overall, inflation-adjusted real wages rose in May at the fastest pace in two years (1.3%).

In the UK, average wages picked up by 2.6% year-on-year across the economy in the three months to July. That isn't much above inflation, but it does at least (finally) represent a real rise in average income. Look at just July and things are better. The figures show regular pay up by 3.1% on an annual basis (3.2% in the private sector and 3% in the public sector).

It also doesn't tell the whole story. As Simon Briscoe pointed out in a letter to the FT this week, the ONS numbers on earnings figures (total wages divided by the total number of employees) work fine in normal times. But in more complicated times, they are too simplistic to help much. In this case, they aren't reflecting the market's "compositional change" the fact that the job creation of the last decade has been "exceptional and a disproportionate number of the jobs have been created at the lower end of the pay scale".

This means that the headline figures do not accurately reflect what the majority of individuals feel. It doesn't, for example, reflect the fact that over the last decade, the median pay of the continuously employed (those who stay in a job for more than a year which is most people) has risen by double that of the average.

So the problem here is not that wages are not rising, but that new jobs tend to be low paid jobs. This is a problem but a different problem. Good news, then, that this too might be beginning to improve.

According to the Resolution Foundation, starting salaries for those born between 1992 and 1995 have picked up for "the first time in a decade". The young are also moving jobs more often than before something that both suggests that they can improve their pay and conditions as they go and reflects a wider confidence in the economy. Today, says the Resolution Foundation, is a much better time to be entering the labour market than ten years ago.

This could, of course, be a false dawn for the UK as David Smith points out in the Sunday Times it isn't the first time in the last decade that it has looked like wages are breaking out. But given the low unemployment numbers and the rises in other countries (wages are more global than they once were) there's a better chance that it isn't. Employers, employees and investors should all take note.

Recommended

What’s in Biden’s global corporation tax proposals?
Global Economy

What’s in Biden’s global corporation tax proposals?

US president Joe Biden’s administration recently proposed a universal model for taxing global companies. Saloni Sardana looks at what's involved.
13 Apr 2021
Why all eyes will be on US inflation data this week
Inflation

Why all eyes will be on US inflation data this week

As the world comes out of lockdown and demand for goods and services rises, attention will shift to inflation and what it means for interest rates. Th…
12 Apr 2021
What China’s new red dawn means for Hong Kong
Chinese economy

What China’s new red dawn means for Hong Kong

China has once again moved to tighten its control over the former British territory and global financial centre. What will remain of the old Hong Kong…
10 Apr 2021
The charts that matter: gold up; dollar down
Global Economy

The charts that matter: gold up; dollar down

Gold rallied a little this week, while the US dollar drifted. Here’s how the charts that matter most to the global economy reacted.
10 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021