by Michael Roberts
The latest data on employment, earnings and prices in the UK
confirm that the cost of living crisis continues, despite the claims of
the Conservative-led coalition government.
By cost of living crisis, we mean that the average earnings of
Britons are not rising as fast as prices in the shops, so that, on
average, British households continue to suffer a fall in their standard
of living (before we take into account net taxes and benefits).
The latest data for June 2014 showed an uptick in UK consumer price
inflation (CPI) from 1.5% yoy in May to 1.9% yoy. This was mainly caused
by a jump in food and clothing prices, which have been muted up to now.
If the cost of housing is included, retail price inflation (RPI) rose
from 2.4% yoy to 2.6%.
So inflation is still outstripping the rise in average earnings.
That’s despite the improvement in UK employment, which supposedly
suggests a tightening labour market that should help workers bargain
better for wage increases. Unemployment in the three months to May fell
to a new post-crisis low of 6.5%.
But weekly earnings rose only 0.3% yoy, or 0.7% yoy excluding bonuses.
The trend for average earnings growth is down over the last two
years. Indeed, it could well turn negative in June – so wages before
prices and tax will be falling compared to last year! This is partly due
to a statistical effect, as last year employers postponed bonuses for
2013 into this tax year when the top rate of tax is lower. So the yoy
rate will recover after the summer. But even so, it will still be below
the rate of inflation.
If there are more jobs and not so many people are being made
redundant, why are wages not picking up? I discussed this in a previous
Much of the recent increase in employment is really in self-employment,
not jobs in companies. Nearly one-third of the increase in jobs since
2008 has been from self-employed with a very sharp rise in the last
year. The Resolution Foundation shows this well.
And these self-employed workers are not highly paid but have set up
their own businesses because they cannot get a proper job. Most are
struggling to make a living. Few are turning over enough to be above the
VAT threshold. The growth over the past decade or so has been among low
The self-employed are not very productive i.e. they don’t produce
much per person. So the headline increase in overall employment has not
led to a matching rise in output. Thus UK productivity growth, already
one of the lowest in the OECD, continues to founder.
Manufacturing output in the top G7 economies remains below
pre-downturn levels, with Italy, France and Japan remaining more than
10% below and the UK still 7.5% below. The US has performed best, but
manufacturing output is still 2.6% below its pre-downturn peak. This
weak recovery is reflected in stagnant or even declining living
standards for most people in the biggest capitalist economies.
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