Full employment nirvana boosts pay settlements

THE CHANCELLOR of the Exchequer's cherished goal of "full employment" has already been achieved in towns as diverse as Aberdeen and Andover with a consequent boost to wages in those areas.

Most of the localities enjoying full employment - defined as where the jobless rate has dipped below 2 per cent - are in the South-east but outside London.

Crawley, Newbury and Winchester and Eastleigh are among the other areas where unemployment is below 2 per cent and where wage rates are therefore under pressure from a tight labour market.

Against a background of inflation running above 3 per cent, pay settlements have been rising since the middle of 1997, Incomes Data Services points out in its latest report.

Its analysis of more than 120 pay settlements shows that just over half provided pay increases of 4 per cent or more. The proportion of deals at 4 per cent or higher has more than doubled in six months with the dip in headline inflation to 3.3 per cent yet to register in wage determination.

Union negotiators are concerned about predictions that inflation will bounce back up to 4 per cent in the spring, possibly pushed up by tax increases in the Budget in a fortnight's time.

Skill shortages are also forcing up the level of pay settlements. Land Rover recently said it was looking abroad to recruit 150 production engineers because of a shortage of qualified employees in this country. Honda said it was forced to look well beyond the local labour market in Swindon to recruit an extra 400 workers. Unemployment in the Swindon area is now down to 2.1 per cent.

Meanwhile, 30,000 electricians have voted to accept a 12 per cent pay increase by next January. These skilled workers, many of them employed by electrical contractors on prestige sites such as the Millennium Dome and the Jubilee Line, will receive 7 per cent this month and another 12 per cent by next January.

Importantly, the agreement allows for premium rates to be negotiated at site level for the first time. This means electricians employed on the large projects in conurbations will receive even greater pay boosts.

Yet the IDS Report asserts that there are widely different pay settlements making up the average earnings growth of 4.7 per cent for the whole economy.

While big increases of 9.6 per cent are being paid in the finance sector and 14.3 per cent in "other services", there were far lower rises of 3 per cent in public services and 2.9 per cent in retailing.

The analysis points to the difficulty of assessing the present performance of the economy. "Rosy scenarios are followed by gloom which is followed by `stable but slow' expectations."