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British wage mystery has non-British explanation
August 16, 2017 / 11:52 AM / 4 months ago

British wage mystery has non-British explanation

LONDON (Reuters Breakingviews) - Britain’s wage mystery is deepening. The unemployment rate has fallen to its lowest in more than four decades, yet wage growth is still tepid. There are some homegrown reasons why pay is not rising faster as joblessness falls, but at least one explanation is non-British in its origin.

Rush hour workers pass Tower Bridge in the financial district of the City of London January 29, 2013. REUTERS/Luke Macgregor

The number of European Union nationals working in the UK has carried on climbing over the year since Britain voted to leave the bloc – by 126,000 to just under 2.4 million in June, the national statistics office said on Wednesday. This is surprising given the uncertainty that hangs over the post-Brexit status of such nationals, but may be one reason why UK wages are rising at a leisurely annual rate of 2.1 percent even though unemployment is down at 4.4 percent.

That can possibly continue as long as long as there is a pool of workers not counted in the headline unemployment numbers, willing to take up jobs when they’re on offer and leave when they’re not. This is the case with EU nationals. It’s also true of some “zero hours” workers, whose contracts guarantee no fixed amount of work. There were 20,000 fewer people employed on such contracts in their main job in the three months to June compared with the same period a year earlier. And a quarter of those still employed on such terms wanted either an additional job, a different job with longer hours, or more hours in their current role.

That makes life very hard for Bank of England Governor Mark Carney as he weighs up the pros and cons of keeping policy rates at record lows. Forecasting how the economy will fare in the run up to, and after, Britain leaves the EU is nearly impossible. It’s becoming almost as hard to anticipate when falling unemployment will finally push up wages.


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