The UK economy appears to be recovering well from the financial crisis. But appearances can be deceptive.
Certainly employment has risen for both men and women since 2009, and the jobless rate has fallen. But new data yesterday from the Office for National Statistics highlights how, despite these achievements, total incomes have been falling in real terms since 2009, as the chart shows:
- Male employment has risen by 900k (blue shading) and female employment by 700k (red)
- Male and female employment have also hit all-time highs of 16.8m and 14.1m respectively
- But total male and female earnings have continued to decline in real terms as £2015 (black line)
- They peaked in 2009 at £1.1tn ($1.67tn), but have since fallen 9% to £1tn today
The reason, of course, is the factor that governments prefer to ignore, namely demographics. The UK is an ageing society, and earnings peak by the age of 50 as the second chart highlights (again based on ONS data):
- There were 5.8m people working in the 30-39 age group, with median earnings of £490/week ($750/week)
- 6.4m were working in the 40 – 49 cohort, with median earnings of £493/week
- But increasing life expectancy meant there were 5.4m working in the 50-59 cohort at £458/week, and 1.9m working in the 60+ cohort at £339/week
- Whilst falling fertility rates meant there were only 4.4m working in the 22-29 cohort for £383/week, and just 1.2m in the 18-21 cohort for £201/week
Of course, governments prefer to focus on achievements when they talk about employment. And with major spending cuts due to be announced next week, no doubt ONS felt it was better not to highlight the issue in their summary report. As far as I can tell from a Google search, none of the major media has mentioned this key fact in their reports.
However, it is clearly critical for both companies and investors. Consumption is around 2/3rds of the UK economy, and it is the 5th largest economy in the world. The data clearly highlights the fact that, like other major economies, the UK faces a future where there will be a declining number of people in the peak earning and spending Wealth Creator 25 – 50 age group, and a rising number of people in the lower-income and spending 50+ age group.
Companies can’t expect to sell products and services to people who can’t afford them. There is therefore an increasingly urgent need for them to develop new business models focused on providing low-cost essentials to the growth area of the over-50s.
Demographics is destiny, after all,