The labour market is delivering on jobs and pay – it is vital for living standards that we keep it that way

a post by Nye Cominetti for the Resolution Foundation blog

A tight labour market is finally delivering decent pay growth. In the three months to July 2019, average weekly regular pay (i.e. excluding bonuses) grew by 1.9 per cent on the previous year (slightly down on the previous month). Given that average real pay grew by 2.1 per cent in the eight years prior to the crisis, we can safely say now that we more or less back to ‘normal’ on pay growth. And with employment (and unemployment) little changed in recent months – at record highs and close to record lows respectively – it looks like the labour market has settled into a healthy holding pattern.

But we should not take this for granted – it has taken ten years to get the economy delivering on both jobs and pay. And there remains an underlying fragility. We only have to look back to 2015 to see that a recovery can turn sour quickly. Then it was the Brexit vote, with the ensuing fall in the value of the pound and the jump in inflation choking off real pay growth. Today, stronger real pay growth is underpinned by stable inflation at normal levels, so we can be more confident that recent growth rates will be sustained. But this assumes, of course, that we do not suffer an economic shock. Our newly healthy labour market would surely not survive the economic disruption that would accompany a no-deal Brexit.

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