Slow growth poses risk to jobs in 2020, even as UK returns to record pay 27 December 2019 The UK labour market is at a turning point, with next year set to see real pay finally surpass its 2008 peak but employment at risk of falling from the record level it enjoyed throughout 2019, according to the Resolution Foundation’s Earnings Outlook published today (Friday). The Outlook notes that 2019 was a good year for the labour market. Despite the UK looking set to record its weakest year of GDP growth (1 per cent) outside of recessions since the war, it has delivered record employment levels (at 76.2 per cent) and the strongest nominal pay growth (peaking at 3.9 per cent in June) in over a decade. The Foundation says that with the labour market amounting to the economy for most households, the big living standard question is whether its bullish run in 2019 can continue into next year given weak economic growth. The Outlook warns that much of the economic data points to a weakening in the jobs market in 2020. It highlights three key warning signs: Wary firms and worried workers. Business’ employment intentions went negative in 2019, while more than twice as many people expect unemployment to rise next year as did so back in 2017. Declining vacancies. The number of vacancies – often a leading indicator for employment – has, while still high, been falling consistently for the past 10 months. Youth job falls. Young people have volatile employment rates, which tend to follow the economic cycle more than most other groups. Worryingly, employment among 18-24 year olds has been falling in 2019. By bringing together various key economic data (including GDP growth, vacancies, the exchange rate and output gap) in a statistical model, the Foundation’s analysis suggests that current weak GDP growth (on track to come in at 1 per cent for 2019) is consistent with falling employment in 2020. On pay the Foundation notes that 2020 will be a symbolic year for the UK’s post-crisis economic history, with average pay packets finally set to surpass their April 2008 peak at the start of the year. This would bring a close to the UK’s unprecedented 11-year pay downturn, but the longer-term prospects for pay risk being held back by the continuing absence of productivity growth. The Foundation argues that it is more likely than not that 2020 will see record pay, but a retreat from record employment as the labour market reaches a tipping point. It could however continue to defy expectations, and the chances of it doing so would be much higher if the return of rising business investment and productivity arrived with the new year. Ensuring they do should be the focus for policy makers. Torsten Bell, Chief Executive at the Resolution Foundation, said: “2019 was a bad year for the economy, which looks set to have recorded its weakest GDP growth outside of recessions since the war. However, the part of the economy that households really care about – the labour market – defied the economic gloom and delivered record employment and decent pay growth. “As we look ahead to the new year, the crucial living standards question facing the country is whether the labour market can continue its bullish run into 2020. “The future is an uncertain land, but our best guess is that 2020 will be very different from the last few years. We may well see a welcome return to record pay levels, but a less welcome retreat from record employment, with worrying signs including falling vacancies and rising youth unemployment. “Policy makers focus on the underlying problem – an economy growing slowly because businesses aren’t investing. This received next to zero discussion during the election campaign, but putting it centre stage should be a new year’s resolution for all of us.”
