Although the unemployment rate plunged to a 42-year low of 4.4% in the three months to June, wage growth in the UK remains stubbornly slow, inching to just 2.1% in the three months to May, excluding bonuses.
The “modest rise” in wage growth is unlikely to be much consolation to consumers, who are continuing to lose their purchasing power, and is “not enough to offset inflation” of 2.6%, said Mould.
The unemployment and wage growth disconnect presents a “curveball” for fans of the Phillips curve, he noted, which states that wage growth will accelerate as unemployment falls and vice versa.
“For the moment, this relationship seems to be breaking down.
“This is all the more unusual when corporate profits stand at a record high, relative to GDP in the UK.”
Mould suspects the break down is due to a confluence of factors, among them the rise of auto-enrolment pension schemes, which prevent workers from accessing their cash until they are at least 55.
Brexit-related fears are another likely culprit behind the stagnant UK wage growth, as companies seek to tighten their belts to curb economic uncertainty.
Changes to the minimum and national living have also had certain unintended consequences on wages, causing some companies to scale back employees’ hours and dole out lower raises.
The national average is also likely being impacted by public sector pay freezes and the boom in self-employment, as “would-be-entrepreneurs tend to pay themselves little or nothing during their new companies’ formative years,” said Mould.
The so-called “gig” or “sharing economy,” another bastion of current job creation, also sees many workers paid the minimum or national living wage as a starting point, he said.
And workers might be “more reluctant to demand lofty pay increases for fear of pricing themselves out of a job,” he added, particularly in the manufacturing and services industries where the threat of being replaced by an automaton is pervasive.
“All of them suggest pay could remain subdued for some time to come, causing further pain to consumers’ wallets unless inflation starts to sag, which it could, if oil falls further and the pound rises, to choke off import cost increases,” said Mould.
