News in Charts: Employment vs. growth: a British puzzle

Despite fairly tepid GDP growth, the UK labour market continues to show surprising resilience. In the twelve months to June, economic output fell by 0.5% but employment rose by 430k, suggesting weak productivity growth. There are several plausible explanations for this ‘productivity puzzle’ but it appears that a large degree of the mismatch can be explained by declining real wages. Inflation has risen faster than average earnings growth for more than two years, allowing firms to either hold on to labour or actually increase their labour force. In effect, the labour market has adjusted via prices, not quantity. While this has obviously not been cost-free, it has helped prevent as large a surge in unemployment as one might have expected based on historical precedent.

• Level of employment reaches record high
• Private sector more than making up for public sector job losses
• Surge in part-time employment playing major role
• However real earnings continue to fall
• What happens if/when real earnings begin to rise?

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