Between September and November of 2024, real wages increased at their fastest pace since 2021, by 3.4%.
According to the Office for National Statistics’ (ONS) labour market statistics, real pay increased by 3.4% on an annual basis and real total compensation (including bonuses) by 3.2% when using the Consumer Price Index (CPI) as a measure of inflation.
Total pay increased by 2.4%, while regular wages adjusted for CPI and including owner-occupiers housing costs (CPIH), grew by 2.5%. The average annual growth of employees’ earnings, without inflation adjustment, was 5.6%.
The private sector had a higher wage growth than the public sector, with 6%.
Liz McKeown is the director of economic statistics for the ONS. She said that the pay growth has picked up again, driven this time by the strong increase in the private sector. The real pay growth (which excludes inflation) increased slightly.
The number of employees in payrolls, as derived from tax data, decreased over the three-month period ending November. In the meantime, our household survey reported that the number of employees fell, while unemployment increased over the same time period. The number of vacancies also fell for the 30th time in a row, but the total number is still slightly higher than it was before the pandemic.
The number of job vacancies has decreased by 118,000 from a year earlier (October to December 2023) and has been declining steadily for the past two and half years.
The employment rate stands at 74.8%. This is down from the previous quarter, but mostly unchanged compared to a year earlier. The unemployment rate is higher than a quarter ago and compared to a year earlier at 4.4%. However, ONS Labour force Survey data continue to be questioned for their reliability and quality.
Inactivity due to long term illness is higher than the previous quarter, at 2,81 million. Since April to June of 2023, the number has been higher than 2.7 million.
The loosening of the labour market
James Cockett is a senior economist at the CIPD. He said, “Today’s numbers show that high wage growth remains a majorstay of the economy.” The private sector has once again been the driving force behind a rise in pay growth. Pay growth is difficult to predict in the future, as the public sector has yet to absorb the increases that were made at the end of the last year, despite the loosening labour market.
“Firms that are unable to absorb the cost increases announced in this Budget may not have a choice but to increase prices this year, which will likely have inflationary effects and feed into continued wage growth.”
Neil Carberry, chief executive of the Recruitment and Employment Confederation(REC), said that this morning’s data on the labour market showed a weakening before Christmas. This reflects concerns about business trading and costs. This will not surprise those who follow the business surveys. This trend will be tested in January and Febraury when firms resume hiring after the holidays. The anecdotes of recruiters from the private sector are not as depressing.
The underlying issues that we’ve seen on the labour market in recent years remain visible today – a lower employment rate than pre-pandemic levels, and a higher level of economic inactivity. These challenges are likely to be compounded by short-term concerns about costs, which could lead to the current rise in unemployment. This is not an unreliable jobs market. The unemployment rate is still low compared to historical norms, and the number of vacancies is high. However, the trend is worrying.
“What we need now is a blend of government policy with business leadership. We are therefore looking for the government to provide clarity about their growth plans. Cost increases are a major concern for firms, which will move us further away from our goal of 80% employment. Industrial Strategy is not just about a handful of projects or sectors. It must also address issues such as planning, infrastructure, taxes and workforce. This whole narrative is a bit disjointed at the moment.”
Talent and flexibility
Natalie Matalon is the chief people officer of Totaljobs. She said, “A collective unhappiness in the labour market increases competition for talent, and businesses must reassess compensation packages and benefits to remain competitive.” Flexible hours are a top benefit for 41% of candidates. Our analysis of 17,5 million job advertisements shows that it is mentioned in just 13%. “Companies that provide clearer flexibility to their employees will be able to attract talent more easily, particularly amongst those who are currently not active in the job market.”
Jack Kennedy, senior economics at Indeed, stated: “The spectre stagflation persists. Businesses still have to absorb the increase in April labour costs due to the Budget. This is likely to lead to a combination of price increases as well as cost reduction measures. Even if layoff warnings do not come true, hiring is facing stiff headwinds. Some firms may even be looking to reduce their permanent headcount by attrition.
“Despite the difficult job outlook and the ongoing debate about the benefits of working at home or in an office, the number of hybrid and remote job postings has not decreased. The share of hybrid/remote postings is still at a high level, with almost 17%. Employers who are still seeking to hire can use location flexibility as a powerful tool. When competitors are pushing the opposite direction, flexibility is a great way to attract top talent.
Blip or productivity gains?
Nye Cominetti is the principal economist of the Resolution Foundation. He said that the UK’s job market was in decline during the second half last year. The number of employees has consistently fallen since May.
But these sobering economic tendencies have not yet materialised in the pay packets of workers. After decades of stagnation 2024 was a strong year. Real wages rose by a healthy 2.2% by November last. It was the best year in wages since 2005.
This unexpectedly high pay growth may be just a blip or reflect unmeasured gains in productivity. It is more likely that workers in the private sector are working harder to keep up with their public sector counterparts and rebuild their salaries after the high inflation over the last three years.
This is good news for the workers if they are able to find a job. It’s not as welcome for the Bank of England, because it makes it difficult to decide when or if interest rates should be reduced.
Subscribe to our weekly HR news and guidance
Every Wednesday, receive the Personnel Today Direct newsletter.
