Have you been listening to the Budget 2020 today? It's positive to hear, and read, employment is at a record high. Given the impact of Brexit and COVID-19 on businesses, the government is acting to address a number of areas to ensure the economy and commerce is supported, where possible.
Here are two areas highlighted in the budget - Labour Market and Earnings & Productivity
1.6 The labour market and earnings
Employment is at a record high. The number of people aged 16 years and over in paid work was 32.8 million in 2019 and was at a record high of 32.9 million in the three months to December 2019. The employment rate – the proportion of people aged 16 to 64 who are in paid work – also reached a record high of 76.5% in the same period (Chart 1.3). The OBR expects the employment level to increase further over the forecast period, reaching 33.4 million in 2024.
The unemployment rate – the proportion of the economically active population (those in work plus those seeking and available to work) who are unemployed – was 3.8% in the three months to December 2019, the joint-lowest in over 40 years. The OBR expects the annual unemployment rate to remain at 3.8% in 2020 and 2021, before rising to 4.1% by 2024.
Every nation and region of the UK has higher employment and lower unemployment than in 2010. Wales has seen the largest reduction in its unemployment rate since 2010, of 5.6 percentage points. There are 3.9 million more people in work than in 2010, with over 60% of the increase taking place in UK nations and regions outside London and the South East. Table 1.1 gives national and regional labour market statistics for the three months to December 2019.
Earnings growth remains above inflation. Nominal wage growth (including bonuses) and regular nominal wage growth (excluding bonuses) were 2.9% and 3.2% respectively in the final quarter of 2019. Over the same period, real total pay growth was 1.4% and real regular pay growth was 1.8%. The OBR forecasts average earnings to grow by 3.3% in 2020 and rise to 3.6% in 2021.4 It then expects growth to fall back to 3.1% by 2024.
Rising real wages have helped to support the growth of real household disposable income (RHDI) per head, a measure of living standards. RHDI per head grew by 0.3% in the year to Q3 2019, down from 1.0% in the year to Q2 2019. The OBR expects annual growth in RHDI per head of 0.6% in 2020, before reaching 1.1% by 2024.5
UK labour productivity (measured as output per hour) did not grow at all in 2019, following subdued growth of 0.5% in 2018. This weakness has partly contributed to the OBR’s judgement to revise down potential productivity growth – the underlying rate that determines how quickly productivity can grow sustainably – by an average of 0.1 percentage points per year across the forecast.6 The OBR does note that “the significant planned increase in public investment potentially boosts productivity by raising the public capital stock, but we have assumed that the effect is likely to be felt mainly beyond our forecast horizon.”7
The UK’s level of productivity has been lower than that of other advanced economies since the 1960s. The UK’s level of productivity is more than 20% lower than other major advanced economies such as the US, France and Germany (Chart 1.4). In addition, UK productivity growth has slowed more since the financial crisis than other advanced economies. UK productivity growth has averaged 0.3% since 2008, slowing from 2.3% in the decade prior. By comparison, growth across the G7 has averaged 0.8% since 2008, compared to 1.9% in the decade prior.
There is wide variation in productivity within the UK. As measured by output per hour, the only two areas with average levels of productivity above the UK average in 2018 were London (31.6% higher than the UK average) and the South East (9.1% higher than average). Productivity can vary significantly within each of the nations and regions as well as between them (Chart 1.5).
In the long term, higher productivity remains the only path to sustainable economic growth and rising living standards. Investing in skills and infrastructure to improve productivity across the UK permits growth by enabling firms to pay higher wages, offer goods and services at lower prices, and increase their profits. Productivity improvements, by enhancing economic growth, are also a fundamental source of long-run growth in tax receipts and the government’s ability to fund public services. A low average level of productivity – as well as significant variation between and within regions – are signs of untapped economic potential. The government is committed to levelling up investment across nations and regions to improve living standards nationally, as well as to address disparities in economic and social outcomes.
Read the full budget with GOV.UK here
Read other News Articles