The latest labour market data has been warmly received by the government. The Chancellor, Jeremy Hunt, put a positive spin on the data, claiming to be heartened by the figures.

But employment is falling and unemployment is rising. The high pay growth heralded by the chancellor comes with some hefty caveats. The reality is that the latest data should concern us. There are clear warning signs of a labour market in trouble.

Heavy caveats on some tepid pay data

Before we get in to discussions on pay growth, a quick explainer on the difference between nominal and real pay growth:

• Nominal pay growth is the change in pay before you factor in inflation. So if you got paid £500 per week in July last year, and it was up to £550 in July this year, that’s nominal pay growth of 10 per cent

• Real pay growth is just the same thing but factoring in inflation. So if inflation was also 10 per cent across the past year, that makes your real pay growth 0 per cent

And it’s worth noting that the most recent data covers May-July 2023. Data is averaged across three-month periods to make it more reliable.

The most recent labour market data shows that real pay growth is currently flat, with real average weekly earnings growing by 0.0 per cent over the past year. We use CPI inflation and current day prices to calculate real wages, which is why we get slightly different figures to the ONS, who use CPIH and 2015 prices.

Coming after twenty consecutive months of real pay falls, stagnant pay feels like good news. But there’s quite a few caveats that have to come with it.

The bigger picture on pay

Firstly, flat real wage growth may seem good compared to what we’ve seen over the past two years, but it’s weak by any other standard. Between 2000, when the current pay records began, and 2008, when the financial crisis hit, real wages typically grew by 2.3 per cent a year.

This speaks to the bigger pay crisis that’s been happening since 2008. In the eight years between January 2000 and January 2008, weekly real wages grew by £98 (18 per cent).

In the fifteen years since January 2008, real weekly wages have fallen by £15 (2.4 per cent). If real wages had instead grown at the average pre-2008 rate over this time, they’d now be £900 per week - £283 higher than they actually are.

Secondly, the headline figure masks some major disparities in real wage growth. Only one sector has experienced real pay growth since 2008: finance and business. The same sector is also currently experiencing the highest pay growth compared to the same period last year.