Bonfire of managerial jobs helps fuel fall in real wage rates across UK

http://www.theguardian.com/money/2014/nov/07/fall-in-real-wages-across-uk

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A fall in real wage rates is being driven by a hollowing out of managerial jobs and shifts in the workforce that mean more workers are accepting poorly-paid jobs, according to an in-depth analysis of the UK jobs market.

The Resolution Foundation said the changing characteristics of the workforce were behind the unexpected fall in real wages during 2014, which have consistently lagged behind rises in inflation.

A report by the independent thinktank found that the return of younger people to the workforce after years of high youth unemployment was a drag on wage rates. New entrants to the jobs market were also taking posts at low rates of pay while management jobs, which traditionally enjoy healthy annual pay rises, have disappeared at an alarming rate.

The changes run against a trend over the last 30 years of rising skills driving up wages by 4% a year on average. Since the 2008 crash wage rises have stayed below 2%. This year the situation worsened as wage rates reversed, falling by 0.2% in August on the previous year – the first time the reading had turned negative since March-May 2009.

Inflation has fallen to 1.2%, its lowest in five years, but it still remains above average earnings rises – which in the three months to August was 0.7%.

The skills base has continued to improve since 2008, but this has only served to prevent a larger fall in real wages, said the Resolution Foundation.

Matthew Whittaker, the thinktank’s chief economist, said earnings are unlikely to exceed inflation before next year.

“We are beginning to get a clearer picture of what underpins these terrible wage figures. Some factors are more benign, while others are a cause for concern,” he said. “The speed-up in the entry of younger and less experienced employees into the workforce, who are invariably lower paid than average, has been an important drag on wages.

“This downward pressure on wage growth should dissipate next year and hopefully open the way for a long overdue return to positive wage growth.

“What’s more worrying however is how the mix of occupations – particularly the decline in managerial roles and the rise of low-skilled occupations – is dragging down wage growth. It’s not yet clear whether this is a temporary blip or the start of a new shift in patterns of UK employment.”

The decline in real wages comes against a backdrop of rising employment and falling unemployment.

According to figures from the Recruitment and Employment Confederation (REC), the full-time jobs market registered another month of growth in October, continuing a run of 25 months of positive jobs vacancy figures.

But the latest report by REC showed that the rate of expansion was slowest since November 2013, reflecting a decline in business confidence.

The survey, conducted by the consultancy KPMG, also registered a rise in the number of temporary/contract staff vacancies for an 18th successive month, though the lift in numbers was the weakest since June 2013.

The Midlands showed the strongest jobs growth for both full-time and part-time jobs. Engineering remained top of the league table in terms of demand for permanent staff during October, marginally ahead of IT and computing. The slowest growth was for hotel and catering employees.

Kevin Green, REC chief executive, said it was good news that the number of vacancies continued to rise, with businesses in all sectors of the economy looking to hire staff.

But, he said, skills shortages were harming businesses and he warned ministers against imposing restrictions on skilled staff from Europe.

“Ongoing candidate shortages are a major barrier to growth. Despite the political sensitivities around immigration, the reality is that we need to bring in more skilled workers, not fewer,” he said.