British workers face longer hours to make up drop in incomes

How to increase your income in a period when employers say there is no money for a pay rise?

For a family the answer is simple: send the out-of-work second earner back into the labour market, and if they are already slaving part time, ask them to increase their hours.

The implication from Wednesday's unemployment figures is that women are returning to the workforce in big numbers, as are young people and to a lesser extent the over 50s.

The trend we see of an economy creating more jobs at virtually the same pay is clear from the latest Office for National Statistics figures. Pay rises have fallen from 1% a year to 0.9% a year. At the same time, employment is up and the number of hours worked fhave increased.

So a worker who is doing the same job this year – same hours, same post – has seen their real income fall. They can increase their hours. But if they have a partner, one who shares their domestic costs and has increased their hours, changes to the tax system in recent years means they are much better off.

There is no doubt that consistent rises in the income tax personal allowance, which rises to £10,000 next year, has encouraged both parents in a family to work. Especially with the cuts coming through in tax credits for middle income earners, a second income from a well-paid part time job or a less skilled full time job is money that is barely taxed.

To a capitalist that is a positive development. But the message is that families are spinning the hamster wheel of life faster and faster just to stand still. Maybe after several years of depressed hours and earnings, that is a normal and necessary part of the recovery.

Yet it cannot go on for much longer that the main wage earner's real income continues declining without some grim consequences. In the short term they may accept the need to work longer hours or reconfigure domestic arrangements for the second earner to work longer hours.

In the longer term, more of the same and a rise in interest rates could see support for the coalition evaporate.

Over in Threadneedle Street, the Bank of England is concerned about productivity and wages. The current trend shows employers caring little about productivity while they can pull in more workers at the same pay rates. They are probably avoiding investments in IT, better offices and new equipment, believing it is cheaper to use more labour.

That will restrain the Bank's impulse to raise interest rates, but for how much longer when the economy is growing with a fresh army of new workers each month increasing the demand for goods and services and potentially pushing up inflation.

As an aside, the figures also show that the vast majority of jobs in the three months to the end of November were taken by UK nationals.

The number of people in employment increased by 280,000 to reach 30.15 million while the number of unemployed people fell by 167,000 to reach 2.32 million. That means 113,000 people got a job who were not on the unemployment register. Of these, only 26,000 were non-UK nationals.

Powered by article was written by Phillip Inman, economics correspondent, for on Wednesday 22nd January 2014 13.26 Europe/London © Guardian News and Media Limited 2010


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