DOD’s blog: Employment up, wages down

We have seen good news and bad news for workforces in recent weeks.

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The good news is that Britain’s jobless rate fell to 6.2% this week.

The bad news is that wage growth is just 0.7% compared to a year ago (excluding bonuses), and is a tenth down compared to pre-recession figures, adjusting for inflation.

I am no economist but it is evident there are a number of factors.

  • Most job growth is at the low paid end.
  • More older people cannot afford to retire so are working longer.
  • We compete for jobs globally so if lower-paid people with better qualifications in other countries can do the job better, why pay UK wages?
  • Ditto for products and services – global competition is pushing down prices therefore the cost of production (including wages) has to come down in Britain.
  • Employers have had to divert pay inflation into increased pensions contributions due to auto-enrolment legislation. This will have an even bigger impact in 2017 and 2018 when the legal minimum for employer contributions increase again.

The Bank of England expects that we will see pay inflation take off in the middle of next year. It may be right, but I think the above influencers are still in their infancy so might keep the brakes on pay inflation for some time to come.

Debi O’Donovan


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Twitter: @DebiODonovan