UK Pay Squeeze Tightens

finimize_news_image_2017_ukwages

Image source: Michael Neil Thomas / Shutterstock.com

What's going on?

More people in the UK are working than ever before, yet wage growth is declining once accounting for inflation. What gives?!

What does this mean?

First, the good news: the unemployment rate in the UK was 4.6% in the first quarter, its lowest level since 1975. Meanwhile, the total proportion of people employed hit 74.8%, a record high (remember, lots of people are too young or too old to have a job). Job vacancies also hit a record high, a sign that firms are looking to hire even more workers.


The bad news is that wages aren’t growing any faster. And, with inflation hitting its highest level in four years in April, costs are now going up more quickly than workers’ pay.

Why should I care?

For you personally: Borrowing money is getting more tempting for Brits.

As prices increase more quickly than wages, it’s tempting for consumers to borrow money in order to maintain their level of spending – which appears to be what’s happening. A more sensible approach may be to cut back on optional purchases (try cooking instead of Deliveroo?).


The bigger picture: Lacklustre wage growth is a problem across the world.

British workers are not alone: while more jobs are also being created in the US and Europe, wage growth there is not picking up much either. A low level of productivity growth probably has something to do with it: companies can only afford to pay workers more money if they are becoming more efficient at doing their jobs, otherwise any raise will put a dent in companies’ profits. Productivity is typically improved through investment (e.g. better technology, equipment, training, etc.) and businesses have been hesitant to invest in a world with low economic growth (since the payoff might not be worth it). So, your paltry wage increase is part of a wider circular problem that is, essentially, the global economy. :(

Originally posted as part of the Finimize daily email.

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