Beware of cutting UK leave scheme too soon, warns Resolution Foundation

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Beware of cutting UK leave scheme too soon, warns Resolution Foundation


The strength of the UK labor market and pay rates have been overestimated, a new study finds, just as the government prepares to cut its wage support program for workers on leave this week.

There is a risk of “dangerous complacency,” the Resolution Foundation warned, as people are still working fewer hours than before the pandemic and wage growth is overstated.

The total number of hours worked in the UK economy is still around 7% below pre-crisis levels, a drop comparable to the depths of the recession, according to the think tank’s analysis based on a survey of of 8,000 workers. The underlying annual wage growth remains slower than before the pandemic hit Europe, he added.

From Thursday, the government’s coronavirus job retention program will be reduced. Employers will have to pay 10% of the wages of workers on leave, with the government paying employers an additional 70% of wages up to a maximum ceiling. So far, the government has paid 80% of wages, without compulsory employer contributions. The holiday is expected to end completely on September 30. The latest available data showed that 3.4 million people were still on leave at the end of April.

Bosses in some sectors – especially in hospitality settings such as restaurants and pubs – complained of labor shortages when they reopened. Evidence of hiring difficulties has raised hopes for wage increases for workers, as economists around the world are on the lookout for the first signs of inflation.

However, the foundation, which researches living standards, said the data suggests the UK labor market is ‘lukewarm’ rather than overheated, and that it was ‘nonsense’ to portray a labor market. British tense.

Average wage growth over the past two years is only 2.2%, the foundation said, compared to official data which shows wages are growing twice as fast. Official measures of wage growth – which showed a booming 5.6% year-on-year wage growth in the three months ending in April – were overestimated due to the comparison to the first foreclosure, during which much of the economy came to a halt.


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Data from Incomes Data Research, a wage research organization, showed that the median wage increase in the three months leading up to May was only 2%, based on an analysis of wage agreements for 1 , 3 million workers. This compares to a current inflation rate of 2.1%, above the Bank of England’s 2% target.

“The UK economy is rebounding quickly from a deep and painful recession. It is especially welcome to see so many employees on leave to return to work, ”said Gregory Thwaites, research director at the Resolution Foundation.

“But these encouraging signs risk breeding dangerous complacency, as people overstate the health of the labor market and downplay the risks that remain to come. “

Kate Bell, head of economics at the Trade Union Congress, warned that evidence of significant upward pressure on wages was still limited. She said the reduction in the leave scheme should be postponed for at least a month until restrictions on businesses are lifted, including a total ban on reopening nightclubs until at least July 19. .

“No one really knows how fragile the current situation is,” Bell said. “There are a lot of workers in the hotel industry still on leave. We do not know what will happen to these companies and these workers.

Bell said unions affiliated with the TUC had seen evidence of worker shortages in specific jobs such as truck drivers and social workers, but warned that these were “isolated pockets.”

“A recovering labor market is not the same as a recovering market,” Thwaites said. “Hospitality labor shortages are not a huge problem, and there is no real evidence of a new wage boom. Instead, these things are part of the bumpy road that the emergence of a pandemic inevitably involves. “

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