National Minimum Wage

National Minimum Wage
5.32 The recessions of the early 1980s and early 1990s saw much greater falls in employment and
hours than in output. Output fell by 4.7 per cent in the 1980s recession but employment fell
by 6.5 per cent and hours by 10.2 per cent. The fall in output in the 1990s recession was
much lower, 2.5 per cent, but employment (down 6.3 per cent) and hours (down 9.1 per cent)
fell by nearly as much as in the 1980s recession. In contrast, during the recent recession, the
loss in output (7.1 per cent) was much larger than both the fall in jobs (2.5 per cent) and the
reduction in hours (4.7 per cent). After the earlier recessions, it took eight quarters for output
to return to its pre-recessionary levels. Output in the third quarter of 2011, nine quarters
after the end of the 2008-2009 recession, is still 3.5 per cent below its level in the first
quarter of 2008.
5.33 Employment did not return to its 1980s pre-recessionary level until 91 months (over seven
years) after the start of the recession. It took 101 months (over eight years) after the start of
the 1990s recession. Hours took even longer to recover from both recessions. The resilience
of the labour market during the most recent recession might lead us to hope that
employment and hours may recover more quickly this time.
5.34 Summarising these forecasts, Table 5.1 shows that the economy is expected to grow weakly
in 2012 before picking up towards trend in 2013. Inflation is expected to fall back throughout
2012 but remain higher than average wage growth, implying a continuation of real wage cuts.
However, real wage growth is expected to return, albeit somewhat muted, in 2013. All the
forecasts do, however, carry a higher than usual level of uncertainty because of the current
volatile economic environment.
138
Table 5.1: Actual Outturn and Independent Forecasts, UK, 2011-2013
Per cent Actual data
2011
(Actual to Q4/
whole year
or latest)
Median of independent
forecasts (November
2011 and January 2012)
OBR forecasts
(November 2011)
2012 2013 2012 2013
GDP growth (whole year) 0.9 a 0.4 2.1 0.7 2.1
Average earnings growth
(whole year)
2.3 b 2.4 - 2.0 3.1
Inflation RPI (Q4) 5.1 2.8 2.6 2.8 3.0
Inflation CPI (Q4) 4.6 2.1 2.0 2.4 2.0
Employment growth (whole
year)
-0.3 -0.5 - -0.2 c 0.3 c
Claimant count (millions, Q4) 1.60 1.79 1.76 1.79 1.74
Source: HM Treasury Panel of Independent Forecasts (November 2011 and January 2012), OBR Forecasts (November 2011) and Low
Pay Commission (LPC) estimates based on ONS data, GDP growth (ABMI), total employment as measured by workforce jobs (DYDC)
and claimant unemployment (BCJD), quarterly, and AWE total pay (KAB9), monthly, seasonally adjusted; RPI (CZBH) and CPI (D7G7),
quarterly, not seasonally adjusted, UK (GB for AWE), 2010-2013.
Notes:
a. Estimate of economic growth based on current ONS data and LPC extrapolations.
b. Estimate of average earnings growth based on January-November 2011 compared with the same period a year earlier.
c. OBR forecasts employment levels rather than growth. Growth forecasts shown here reflect the percentage differences between
these forecast levels.