Boris Johnson often stands accused of playing fast and loose with the facts. But when the UK prime minister told the BBC on Sunday that wages were finally rising, he was telling the truth.
While official data are a minefield of pandemic-related distortions, the Office for National Statistics calculates underlying annual growth in its headline measure of wages at between 3.6 per cent and 5.1 per cent for the three months to July, ahead of consumer price inflation in that period. The Bank of England estimates private sector pay growth at around 4 per cent, above its pre-pandemic rate.
Business leaders are reporting sudden pay rises for very different occupations as companies compete for workers — from abattoir staff to bankers, from welders to lawyers. “It’s a herd mentality,” said one. “There are pay rises of 10 per cent, 15 per cent which weren’t happening a few months ago. Suddenly pay is spiking in lots of different industries.”
Far more contentious, though, is Johnson’s assertion that the labour shortages that have left supermarket shelves empty and petrol stations dry are part of a “period of adjustment” to a higher-wage, more productive economy.
Despite the clamour from business, real-time data still suggest that only a few people are getting a big pay rise — chiefly in areas most exposed to the sudden stop in migration from the EU. The median advertised hourly wage for heavy goods vehicle drivers rose 15 per cent between January and September, according to the job site Indeed, but across all job postings, advertised pay rates rose just 1.3 per cent.
The BoE’s agents found a similar divergence in pay awards for existing employees — with increases of 10-40 per cent for skills in short supply, but typical settlements around 2-3 per cent. For public sector workers, hit by the government’s pay freeze, even that is out of reach.
Suren Thiru, economist at the British Chambers of Commerce, said there was little evidence in its latest survey of members of higher inflation “stoking a broad-based escalation in pay settlements.”
“The dispersion of pay growth has risen quite markedly — so for the high numbers we read about, there are also low ones,” Andrew Bailey, BoE governor, said last month.
This could potentially be a good thing, if it means above-average wage gains in sectors where low pay and poor conditions have led to a chronic over-reliance on imported labour. “Wages are finally going up for the low paid . . . and about time too,” Johnson said.
But it means that for most people, wage gains will be far more modest — and could be entirely wiped out by inflation, which the BoE expects to climb to above 4 per cent by the end of the year.
Richard Walker, managing director of the Iceland supermarket chain, told the Financial Times that rising wages and bills would soon be reflected in grocery bills, with the price of four pints of milk set to rise in his stores by 9 per cent.
“Wages are going up for some people but prices are going up for everybody,” said Torsten Bell, director of the Resolution Foundation, a think-tank. He added that wages had already grown faster at the bottom of the pay scale for some years as a result of the minimum wage but this had not led to the change the government wanted in overall pay and productivity.
Even in parts of the economy with the biggest Brexit-induced shortages, workers’ newfound bargaining power may be shortlived. Bell said that in some sectors, such as hospitality, automation might raise productivity — with hotels already adopting touchscreen check-ins and cafés switching to self-service. But elsewhere, higher wages would simply mean higher prices, smaller profits and some industries shrinking — with more food imported and people becoming more likely to wash their own car.
Julian Jessop, an independent economist, said Brexit supporters on both the left and right had always argued that ending free movement would push up wages, and therefore force businesses to invest more and raise productivity — but that it would not be a “game changer”.
Against the backdrop of a tight labour market, “we will end up in a better place . . . regardless of Brexit”, he said, predicting a cyclical recovery in productivity and real wages as the economy normalised.
But in the short term, the acute labour shortages disrupting supply chains — which Walker described as a “self-inflicted wound” — have clearly delayed any such recovery in productivity, rather than accelerating it.
Kallum Pickering, economist at Berenberg, said that because of worsening supply issues, he now expected gross domestic product to grow in the fourth quarter by just 0.8 per cent, half the rate of his previous forecast — adding that the government’s apparent shortcomings were hurting economic performance.
The US and major European economies faced similar challenges, but only in the UK had they triggered panic-buying, he said. “The panic and hysteria in the UK partly reflects a growing lack of confidence by the public in the government’s ability to manage the economy and fix problems when they arise . . . It is unnerving that panic buying could become a feature of the UK economy.”
Source: Economy - ft.com
