29 Jul 2013
Flash: UK shows labor market resistance – Goldman Sachs
FXstreet.com (New York) - The resilience of the UK labor market in recent years has been a comparative bright spot in an otherwise gloomy economic picture, suggests the Economics Research Team at Goldman Sachs.
Key quotes
“Relative both to past UK recessions and to the majority of other advanced economies, employment has held up well and the rise in unemployment has been muted. However, the relative strength of the UK labor market when output growth was weak is giving way to concerns that there is limited slack in the labor market now that growth is improving.”
“We argue that these concerns are misplaced. Were the strength of employment growth due to strong demand for labor, one would expect it to be associated with strong wage growth. The fact that rising employment has been associated with declining wage growth – to the point where real wages are falling – suggests that the strength of employment has been due to increases in labor supply.”
“Moreover, the joint performance of employment and wages in the past 18 months suggests that there has been a marked increase in labor supply over this period in particular.”
Key quotes
“Relative both to past UK recessions and to the majority of other advanced economies, employment has held up well and the rise in unemployment has been muted. However, the relative strength of the UK labor market when output growth was weak is giving way to concerns that there is limited slack in the labor market now that growth is improving.”
“We argue that these concerns are misplaced. Were the strength of employment growth due to strong demand for labor, one would expect it to be associated with strong wage growth. The fact that rising employment has been associated with declining wage growth – to the point where real wages are falling – suggests that the strength of employment has been due to increases in labor supply.”
“Moreover, the joint performance of employment and wages in the past 18 months suggests that there has been a marked increase in labor supply over this period in particular.”