UK employment could fall in 2020, despite average UK pay being expected to pass its pre-crisis record, economists have said.
The labour market is at a turning point, according to a report from the Resolution Foundation. It forecasts that average real pay – allowing for inflation – will surpass the peak it reached in 2008.
But the record levels of employment characteristic of 2019 are at risk, the thinktank said, adding that “Brexit uncertainty and global headwinds sapped business confidence, leading to stalling investment and zero productivity growth”. A year of historically poor GDP growth – on course for just 1% – puts into question whether employment levels of 76.2% and strong pay increases can continue in 2020.
Torsten Bell, chief executive at the Resolution Foundation, said: “2019 was a bad year for the economy, which looks set to have recorded its weakest GDP growth outside of recessions since the war. However, the part of the economy that households really care about – the labour market – defied the economic gloom and delivered record employment and decent pay growth.
“As we look ahead to the new year, the crucial living standards question facing the country is whether the labour market can continue its bullish run into 2020.”
The report said that there were “clouds on the horizon” according to key indicators such as a decline in advertised job vacancies and an increase in unemployment among 18- to 24-year-olds.
Bell said: “The future is an uncertain land, but our best guess is that 2020 will be very different from the last few years. We may well see a welcome return to record pay levels, but a less welcome retreat from record employment, with worrying signs including falling vacancies and rising youth unemployment.
“Policymakers focus on the underlying problem – an economy growing slowly because businesses aren’t investing. This received next to zero discussion during the election campaign, but putting it centre stage should be a new year’s resolution for all of us.”
The foundation said 2020 would be a “symbolic year for the UK’s post-crisis economic history”, with average pay packets finally surpassing the level last seen almost 12 years ago, in April 2008, before an unprecedented period of weakened earnings. With employment likely to remain high by historical standards despite predicted falls, the Bank of England has recently revised up forecasts of nominal pay growth in 2020 to 3.75%.
On several indices, however, the authors predicted the boost to living standards could run out of steam. It said firms were wary, with businesses in 2019 looking to employ fewer workers, and surveys showed more than twice as many people expected unemployment to rise next year as did in 2017.
Gaps in employment rates between regions have widened, with the north-east of England now about 10 percentage points lower than the south-west.
Meanwhile, although the rate of decline in vacancies in 2018 was below the level that would trigger a recession, the trend was “reasonably large” – the biggest since the crisis – and enough to suggest a turning point in the labour market.
The latest annual data from the Officefor National Statistics showed median weekly earnings for full-time employees in the UK were £585 in April 2019 – £18 lower than the £603 earned at the peak in 2008 (adjusted to 2019 prices). The proportion of people experiencing an effective pay cut through inflation fell to just over a third, or 35.7% of full-time employees, in 2018-19.
A recent TUC analysis of government hourly pay data found that the pay of top earners has continued to rise at a faster rate than any other group. People in the highest earning bracket had their pay rise by 7.6% to £63.18 in the last two years, while the average worker’s pay rose by just 2p an hour, to £12.73 in real terms.
