LONDON (Reuters Breakingviews) - Britain is in the middle of a joyless job boom. Nearly three out of every four working-age people were employed in the first quarter of 2017 – the highest level since the early 1970s. But prices are rising faster than wages, and a post-Brexit crackdown on immigration threatens to limit expansion in the workforce. That makes persistently weak productivity an even greater cause for alarm.
First-quarter data, released on Wednesday, highlight many of the issues that are featuring in the UK’s upcoming general election. Britain continues to create new jobs: the unemployment rate fell to 4.6 percent, its lowest level in more than four decades.
However, wages are not keeping up with inflation: before bonuses, regular pay was 2.1 percent higher in the first three months of the year. After factoring in inflation, it was down 0.2 percent. This is not a one-off. In real terms, the average British worker still takes home 3 percent less a week than in May 2008. Despite the tight labour market, workers seem unwilling or unable to push for higher wages.
Britain’s impending departure from the European Union may change that. Prime Minister Theresa May has reiterated a pledge to reduce immigration to “tens of thousands” – widely assumed to mean a maximum of 100,000 people a year – even though Britain admitted almost three times as many in 2016.
Any sustainable increase in real wages, however, will depend on workers being more productive. There’s little sign of this happening. The amount of output produced per hour actually dropped by 0.5 percent in the first quarter compared with the previous three months, continuing Britain’s weak post-crisis performance.
It’s possible that restricting overseas labour will force British employers to invest more in training workers at home. But Brexit could have the opposite effect. Companies that are dependent on exports tend to have higher rates of productivity, Bank of England Chief Economist Andy Haldane has pointed out. So do foreign-owned firms. Anything that discourages trade and foreign investment could end up making Britain’s jobs boom even more morose.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.