Wednesday, December 12, 2007
A benign labour market
Posted by David Smith at 10:00 AM
Category: Thoughts and responses

The outlook for 2008 may be uncertain but so far the job market is holding up well and earnings growth remains subdued. The claimant count dropped by 11,100 last month, while the Labour Force Survey measure dipped by 15,000 in the three months to October. Employment rose by 114,000 over the quarter. Earnings growth, meanwhile, dipped from 4.1% to 4% including bonuses, and from 3.7% to 3.6% excluding bonuses. Details here.

Comments

Average earnings are benign, yes. But the source of this looks odd, at least in the October data.

Wage growth (including bonuses) in manufacturing was at its weakest ever. That's right, EVER (well, on record at least). Seems a bit puzzling against the continued strength of manufacturing surveys.

Posted by: Sell Everything at December 12, 2007 02:03 PM

I'd agree that there seems no evidence of crisis from the labour market.

Manufacturing earnings are frequently odd - for a fair portion of the year earnings have been high while manufacturing employment fell - so there is quite a likelihood of compositional factors going on. What I mean is that redundancies tend to occur in firms that have been having problems for a while, and have had lower wage levels than normal for their sector. Therefore redundancies and closures increase average earnings as the surviving firms have higher pay levels. Possible that the converse is true.

The claimant count is really not an economic measure even if it is more up to date than the labour force survey measure - it basically misses out unemployed women, who have just as much impact on earnings rises etc. as unemployed men. Also the claimant count is affected by administrative measures - which have happened in the recent past - a relaunch of the JSA regime that has led to large numbers being turfed off benefit for not doing what they were told in seeking work.

Posted by: paulbiv at December 12, 2007 02:29 PM

True, but the ILO measure of unemployment is also falling, down 74,000 since the peak in August 2006. Admittedly, that's signficantly less than the claimant count would suggest.

Your point about manufacturing earnings is interesting. The weekly earnings series shows more subdued wage growth last year and stronger growth now. My understanding is that the weekly earnings series corrects for these compositional effects more often than the average earnings measure. Is that right?

Posted by: Sell Everything at December 12, 2007 02:58 PM

The claimant count number has fallen from 62% of the ILO number to 52% since July 2005 - that's quite a big change, and this is just an extension of a previous relationship. Some of the relationship is administrative changes, but also the increasing labour market participation of women has much to do with it - unemployed women tend not to claim benefits as much as men.

As far as the earnings index is concerned - I think that was one reason why the average weekly earnings figures were introduced, although I haven't read up on the methodologies actually used as opposed to the ones proposed at the time. However, it looks as though the next AWE for manufacturing is going to show a drop - based on the 5.3% monthly increase in July dropping out of the three-month figure - August was 3.9 and Sept 3.0. That looks not too different from the AEI.

However, they do have (in their supplementary tables) some decomposition into wages contribution and employment contribution to earnings growth, but just by public and private sector. If they did that for manufacturing it would answer the question.

Posted by: paulbiv at December 12, 2007 06:38 PM

There is something odd about the manufacturing numbers including bonuses, not least because bonuses aren't usually a big proportion of pay in manufacturing. The ex-bonuses figure looks more or less in line with other data, and the low weight of manufacturing probably means that even the quirkily low number including bonuses will not have had a huge effect on the overall averages.

Posted by: David Smith at December 12, 2007 06:53 PM