Advertisement
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).

Advertisement - Article continues below

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."

Advertisement
Advertisement - Article continues below

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%).

Advertisement - Article continues below

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".

Advertisement - Article continues below

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.

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
UK house prices hit a new record high – can it last?
House prices

UK house prices hit a new record high – can it last?

Despite the pandemic, UK house prices have hit a new high. John Stepek looks at what’s driving the surge in prices, and what it means for house prices…
7 Aug 2020
South Africa faces a big economic storm
Emerging markets

South Africa faces a big economic storm

Recession hit South Africa has been the fifth-worst hit country in the world measured by the number of coronavirus cases. The local stockmarket has so…
7 Aug 2020

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Gold hits the big $2,000 level – are Aim miners about to play catch up?
Gold

Gold hits the big $2,000 level – are Aim miners about to play catch up?

With the price of gold shooting through $2,000 an ounce, the yellow metal looks unstoppable. Things are so bullish, even Aim-listed junior gold miners…
5 Aug 2020
Too embarrassed to ask: what is “real return”?
Too embarrassed to ask

Too embarrassed to ask: what is “real return”?

MoneyWeek's latest "too embarrassed to ask” video explains what a real return is and why it's so important for investors.
5 Aug 2020