Employment at 15-year high but pay inflation weak
The figures confirm private sector employment has hit 24.1 million under the coalition government, with 80.9% of jobs now in the private sector against 19.1% in the public sector, which is a fall of 2.1%.
Minister for Employment Mark Hoban said: “The cynics claimed the private sector wouldn’t step up to create jobs as we bring public spending under control. These figures show that the cynics were wrong.”
However, Robert Wood, UK economist, Berenberg Bank said the rise in private sector employment has come at the cost of very weak or non-existent pay increases. He added the UK savings rate has also halved from 7 to 4% in the last six months.
“The cost of living has been going up but wages haven’t as people try and keep or gain that job. Inflation adjusted pay has barely changed over the past 5-10 years. And that is one of the key risks to the recovery that we are seeing. It is being driven by lower mortgage rates and consumers are consuming instead of saving. But their real wages are still falling, pretty rapidly, which may eventually catch-up with us.”
Wood said the hike in private sector employment is hard to understand especially as output has not increased.
“It is the so-called productivity puzzle. It is always good when people keep their jobs but producing less and less is not the key to sustainable recovery.”
“What you are seeing is monetary policy starting to work. The fall in mortgage rates over the past 12-15 months feeding into higher household confidence, more consumer spending and that feeding through to business and employment prospects – and I think it will continue,” he added.
Also, much of the rise in employment has been in part-time or zero hours contracts, said Wood, which is good news but not “unadulterated good news.”