Unit labour costs 5.3% down on year: Lower pay deals show results

THE KEY measure of British industry's cost competitiveness is improving at its fastest rate on record, outstripping the performance of Japan, Germany and the US.

The amount spent on wages and salaries to produce each unit of manufacturing output in May was 5.3 per cent lower than a year earlier, according to the Department of Employment. This is the biggest one-year fall since records began in 1970.

The fall reflects a combination of low pay settlements, falling factory employment and an accelerating recovery in manufacturing output.

Companies have been stepping up production by lengthening the working week and offering more overtime rather than by employing more workers. Overtime was at a 10-month high in May while the working week was its longest for a year.

Unit labour costs fell 3 per cent in Britain in the year to the first quarter of 1993. They fell by 1 per cent in the US and rose by 7 per cent in Japan and 9 per cent in Germany.

Average earnings growth slowed to a 26-year low in May, pulled down in part by the 1.5 per cent public sector pay ceiling. May's figures included the 1.5 per cent increase for 166,000 civil service clerical workers, down from 4.75 per cent last year.

Average earnings grew by an underlying 3.75 per cent in the year to May, the lowest rise since 1967. The slowdown was concentrated in services, where growth fell by a quarter point to 3 per cent. Earnings growth in manufacturing has been stuck at 5 per cent for four months, with low settlements offset by the upturn in overtime and the working week.

Earnings growth has lagged behind the fall in pay settlements - which now average a little over 2 per cent - because the figures encompass a year's settlements, not just the most recent. They include overtime and bonuses.

Nick Parsons, of Canadian Imperial Bank of Commerce, said wages were still being held down by people's fear of losing their jobs. 'But, with higher overtime earnings and some relief from the recession-induced belt-tightening, the long fall in average earnings growth may be coming to an end,' he added.

Productivity - the amount of output produced by each factory worker - is increasing at its fastest rate since the beginning of 1980. Output per head was 10.5 per cent higher in May than a year earlier. Annual productivity growth throughout the economy was running at 4 per cent in the first three months of the year.

Hamish McRae, page 25