Why British wage growth is picking up at last

PERHAPS NO OTHER factor better explains why so many Britons want radical change, from voting for Brexit to backing Jeremy Corbyn’s far-left Labour Party. Since the financial crisis of 2008-09 Britain’s wage growth has been dreadful. Adjusting for inflation, wages fell from 2007 to 2017, a worse performance than in any other OECD country except Mexico or Greece. At last, however, the tables are turning. Data released on April 16th show that nominal pay is growing at about 3.5% a year (see chart), or 1.5% a year in real terms. Can this growth continue to accelerate?

The obvious cause of strengthening pay is the tight labour market. When unemployment hit its post-crisis high of 8.5% in 2011, employers knew that they could get away with offering meagre or no pay rises. Workers’ bargaining power has since grown, as joblessness has fallen. Unemployment is just 3.9%, the lowest in four decades. Britain has about three vacancies for each 100 employee jobs, the highest ratio since the data began in 2001, meaning bosses have to try harder to fill posts. Nominal pay in the hospitality sector, which has a particularly high number of job postings, is growing at 5% a year.