National Minimum Wage

Chapter 5: Setting the Rate
short-term variations largely cancel out so that, for example, since April 2000, the earliest
date from which we can compare the two series, the ASHE median has actually grown
marginally faster than AWE total pay, the difference over the eleven years to April 2011
amounting to just 0.8 percentage points.
5.28 For completeness, we have looked at the quarterly average earnings forecasts prepared
by OBR which, as they are calculated in a way that takes account of forecast changes in
employment, are thereby broadly comparable with ASHE and may give an indication of the
level of bite arising from our 2011 and 2012 recommendations. The OBR forecast for the first
quarter growth in average earnings in 2012 is 2.3 per cent. Of course, we recommend rates
for a full twelve months, from October to October, whereas ASHE is a snapshot of earnings
levels in a specified period each April. It seems appropriate, therefore, to look at earnings
growth forecasts for the full period based on averaging the OBR forecasts for the four
quarters from the second quarter of 2011 to the first quarter of 2012 (April 2011 to April
2012). This gives a figure of 1.7 per cent. The same analysis for 2013 shows earnings growth
in the first quarter of that year at 2.4 per cent, or 2.0 per cent on average for the period from
April 2012 to April 2013.
Prospects for Employment
5.29 As a result of the weakness in output growth, the UK labour market is likely to deteriorate in
2012. The OBR and the median of independent forecasters expect a fall in employment in
2012, albeit by only 0.2-0.5 per cent, while claimant unemployment is expected to increase
from 1.60 million at the end of 2011 to 1.79 million by the end of 2012. The expected upturn
in growth in 2013 should lead to increased employment and a fall in unemployment.
5.30 The quarterly CIPD Labour Market Outlook (autumn 2011) showed that the labour market
was expected to weaken further going into 2012. Expectations among private sector
employers continued to show a positive outlook for employment but it was stronger looking
forward over the next twelve months than in the short-term. In contrast, employment was
expected to fall across the public sector throughout the next twelve months. This suggests
that the rate of job growth in the private sector will continue to slow in the short-term and
may be insufficient to make up for the job losses in the public sector. This growth in private
sector jobs is therefore unlikely to offset the increase in the working age population (around
60,000 a quarter) and unemployment is likely to increase for some time as a result.
5.31 The Recruitment & Employment Confederation’s (REC) Jobs Outlook (2011) had found that
about 80 per cent of employers intended to increase or maintain their temporary workforces
and this was up on the same time a year ago. However, the REC and KPMG Report on Jobs
(2012) showed that in December 2011 recruitment consultants had placed fewer people in
permanent placements for the third month running. That rate of decline had been modest but
temporary billings had also decreased for the first time since July 2009, around the time that
the recession had officially ended. The availability of both permanent and temporary staff had
also accelerated markedly, increasing at its fastest pace since October 2009. This suggests
that the labour market had weakened in recent months as uncertainty about the eurozone
had fed a lack of confidence. But the Report on Jobs showed that vacancies were still strong.
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