Global Economics Weekly Brief
Job Creation vs Salaries
The UK economy’s ability to create jobs remains strong, but for many workers it’s more of the same when it comes to the pay packet – it’s barely growing.
That means economic growth can continue without causing inflation, so there’s no rush to raise rates. But it’s highly unlikely to last forever. Many Foreign workers are willing to work for less money so this keeps wages down to a level which will be an issue in the future!
Upstairs, Downstairs. The familiar pattern of strong job growth and weak wage growth continues. Employment is up 774k y/y and the unemployment rate is down to 6.2%. The latter is closer to its pre-crisis trough than its recessionary peak. Real wage growth remains a distant memory: pay increased by around 0.7%y/y with prices rising more than twice as quickly. Are the UK becoming a nation of servants? Job growth is fastest among cleaners, gardeners, dog walkers and butlers, up 43%y/y. Are the UK in the arena of the rich get richer and the poor get poorer?
MPC split remains. Minutes showed the Bank of England's Monetary Policy Committee members voted the same way in September as they did in August, with a 7-2 split in favour of keeping interest rates at 0.5%. Two dissenters think interest rate hikes are warranted, but at a gradual pace. Explanations for the depressed state of wage growth were also offered. First, workers appear more reluctant to jump ship than they were pre-crisis, meaning generous pay rises are not needed to keep hold of staff. Second, the MPC thinks there’s been a change in the jobs we do, with new workers less qualified or employed in lower paying sectors. And that will weigh down on average pay growth. Whatever factors are at play, most MPC members think the economy can continue to grow without sparking inflation. The question is for how long? Will there be social unrest by keeping wages down?
Still down. UK CPI inflation fell slightly to 1.5%y/y in August, from 1.6% in July. That’s the lowest rate since 2009 and continues a slow but persistent fall that started in September 2011. Back then annual inflation reached 5.2%. Inflation has been below the Bank of England's 2% target for all of 2014, a fact that's likely to hold for the rest of the year. What will the future bring?
Until you drop. UK shoppers are still strutting their stuff. The volume of retail sales grew 4.5%y/y in August, slightly above the average reading seen over the past 12 months. Clothing and footwear grew by 7.2% while household goods and furniture stores are experiencing very strong annual growth on the back of the housing market recovery. And there is more evidence of the supermarket price war helping pockets. The average price in food stores fell by 0.1%y/y in August - the first fall since 2004. It supports the CPI readings, which show food prices have been falling since the spring. Buying on credit cards is booming, how will people pay back these borrowing?
Bright prospects for the UK. That at least is the message from the OECD's latest economic growth forecasts. The UK is expected to be the fastest growing advanced economy this year. The think-tank's forecasts are that the economy will expand by 3.1% this year and 2.8% in 2015, despite a Euro zone economy that is now expected to grow by just 0.8%. Italy's economy is expected to shrink by 0.4% this year. And the news gets no better for the beleaguered European economy in 2015, with the prior forecast of 1.7% revised down to just 1.1%. On the plus side, the US is expected to find its mojo next year, with an expected 3.1% expansion in the pipeline - the best figure of all the advanced economies in 2015. There is still very high unemployment in the Euro zone and this will continue with people leaving their countries and heading for the countries where jobs are available! This is why the UK are crowded out with foreign people willing the work for low wages!
Still rising. UK House prices continued to rise in June according to the Office of National Statistics (ONS), with the pace of growth increasing to 11.7%y/y. London was out in front, with prices growing 19.1%y/y, while Yorkshire and the Humber saw the slowest growth of 5%y/y. In a sign of how far the capital has run away from the rest, it is only in the South East, the South West and the East of England that average house values are more than half of what they are in London. In Northern Ireland and the North East, they are less than a third. Boom and bust on the way again!
Quantitative Ending. If job market conditions continue to improve the US Fed will draw down the curtain on its quantitative easing programme next month. It reckons the labour market is healing but not yet healed. Unemployment remains above its normal rate and there are plenty of people who would look for work if there were more jobs. Along with dormant inflation, this explains why the stimulus of low interest rates will remain for some time yet. Fed members’ forecasts suggest the first rate rise is likely to come next year. Unemployment still a major issue!
Rebalancing success? The UK has struggled to generate a rebalancing toward exports in the post-crisis period. The UK trade deficit is only slightly lower than it was pre-crisis. The Euro area on the other hand has moved from a broadly balanced trade position to one of surplus since early 2012. But look more closely and this trade surplus has more to do with lower imports rather than stronger exports. Euro zone imports have fallen by over 3% since early 2012 as the weakness in demand and elevated unemployment have checked import demand. And of course the weakness in Euro zone imports is a big reason behind the UK rebalancing challenges.
Emerging more slowly. India’s economy grew by 5.7%y/y in Q2, the fastest pace since early 2012. At last the country may be beginning to put its recent slowdown behind it. But there’s a lot of work for the new government to do to get growth back up to the 9% plus growth seen pre-crisis. Asia’s other growth stars have also experienced a slowdown. Indonesia grew by 5.1% in Q2. Back in 2011 it was growing by 6.5%. The good news is to be found in the Philippines. A much-needed bout of investment has helped propel growth to a multi-year high with the economy growing by 6.4%y/y in Q2. And these economies increasingly matter. The combined size of the Philippines and Indonesian economies is almost the same as Italy. Asia growth is slowing rapidly!
Welcome break? New credit entering China's economy fell sharply in July, according to one measure. Indeed, the £27bn of new financing was the lowest monthly figure since the financial crisis. But it will take much more than one month's data to allay fears over China's post-crisis debt accumulation. When we take the past four months into account new credit is still growing at 7.5%y/y, broadly in line with the pace of GDP growth. For the long-term health of China's financial system, it is necessary that credit growth remains broadly at this rate for some time. China is burning out!
Ageing Workforce Globally - Mature Workers will fill the `Skills Gap`, so let them!
By keeping mature staff and attracting others from retirement is a better way of solving our skills shortage than transporting in migrants. So let us respect our fit and able mature workers to continue their excellent work for the success of the country.
Top executives in Europe, America and Asia have admitted for the first time that older (mature) workers are the key to fixing the skills gap globally.
Why do not these top executives persuade employees to stay on beyond retirement or to recruit other skilled and experienced people?
We are reaching a tipping point and we are seeing a fundamental movement in thinking across business. There is such an enormous white-collar and professional skills shortage that attitudes are having to change now, rapidly. Businesses are realising that they have to hold on to older (mature) skilled and experienced workers.
Due to the number of young adults decreasing in the West and lifespan increase, the limitations of today's strategy of importing foreign workers are showing. Persuading the older (mature) workers to stay on and tempting others back from retirement is now imperative. We need all businesses to see the `light` otherwise costs of employment will rise rapidly.
It is some time now after the introduction of laws `banning` discrimination on the grounds of age, this prejudice is poised to overtake sex discrimination as the greatest workplace grievance. There is probably about a quarter of UK workers feel they had been discriminated against on the grounds of age. At this present rate it will increase rapidly due to the increase in foreign workers being transported to the UK in droves!
Research from the Employers Forum on Age suggested that ageism remained deep-rooted in the workplace. Six out of ten people were said to have witnessed ageism at work in the previous 12 months. The Employers Forum on Age has said that 200 claims a month were now being lodged with the Tribunals Service and increasing rapidly.
Therefore, is business torn between realising that older (mature) workers are the answer and an emotional rejection of the inevitable? What do recruitment and HR executives think? Well, I believe that the prospect of legions of older (mature) workers fills them with horror! Why, because of their income streams that will slow down, as older (mature) workers do no move from job to job. Older (mature) staff are more loyal and reliable than younger workers (despite all the worries about failing health, older employees take less sick leave than younger ones and most cases older (mature) people are fitter and have a positive attitude to life.
Some companies believe they are already ahead of the curve on the age issue. They have turned to retired staff to meet customer demand. Customers seem to find mature staff particularly reassuring. Look at many of these companies and for example `We have more than a dozen retired technicians who still have the skills and attitudes we want and of course a lot of experience and who still want to work`.
UK schools and hospitals are already showing the strain of catering for an influx of younger workers from Eastern Europe. There is an issue with the language and illnesses that our hospitals cannot cater for!
The pioneering business is now in the retention and recruitment of older (mature) workers. Many companies have risen the retirement from 60 to 70 and some cases to 75.
Changing demographics means there is a clear business case for change. Customers are more satisfied with the services they receive from older (mature) staff; older workers stayed longer and recruiting and retaining older workers met the company's fairness and diversity policies. Also, people are working on because they want to and not just because they need the money.
However, the reality is that there are only a few businesses going all out to attract older people. It is time the majority woke up to the pending crisis. In fact, the recruitment of older (mature) workers is now so critical that it merits the introduction of positive discrimination. There is so much prejudice that I would argue for positive discrimination - for example, giving older workers more rights on part-time working. It has to be understood that these days older workers may also be caring for even older relatives has there are no care homes to take them on board.
Positive discrimination is controversial, but we have to consider the major talent shortage facing us over the next 20 years plus. Time, is not on our side, so we all need to take action on the older (mature) workers and also train the few younger people into jobs that are needed for us all to survive. So, we need to plan ahead to defuse the `demographic time bomb` before it is too late!
About the Author Colin Thompson
Colin is a former successful Managing Director of Transactional/Document Manufacturing Plants, Document Management/Workflow Solutions companies and other organisations, former Group Chairman of the Academy for Chief Executives, Non-Executive Director, Mentor - RFU Leadership Academy, Mentor - Coventry University, Mentor - The Chartered Institute of Personnel and Development, author/writer Business Advice Section for IPEX, Graphic Display World, NewsUSA, GraphicStart, many others globally, helping companies raise their `bottom-line` and `increase cash flow`. Plus, helping individuals to be successful in business and life in general. Author of several publications, research reports, guides, business and educational models on CD-ROM/Software/PDF and over 2000 articles and 35 books published on business and educational subjects worldwide. Plus, International Speaker/Visiting University Professor.
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Written and submitted by:
Dr Colin Thompson
Direct: + 44 (0) 121 247 4589
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Job Creation vs Salaries