Wednesday, 12 April 2017

How low can the UK jobless rate safely go?

According to the latest official data (mostly covering the three months to February 2017) just released by the Office for National Statistics, the UK labour market continues to enjoy a robust sustainable expansion.  

There were 39,000 more people in work (mostly full-time) in the latest quarter plus a record number of job vacancies (767,000), 45,000 fewer unemployed and 10,000 fewer economically inactive alongside an easing in pay pressure. 

A joint record employment rate of 74.6%, an unemployment rate at a 42-year low of 4.7% and almost zero (0.1%) growth in real average weekly earnings illustrates a remarkable structural change in the operation of the UK labour market compared with earlier decades. 

This particular combination of jobs and pay suggests that the unemployment rate could fall much further, perhaps below 4%, without triggering troublesome pay inflation. While the effect of Brexit uncertainty on the demand side of the economy might yet result in a temporary rise in unemployment later this year, full employment is thus now a more realistic prospect for the UK than at any time since the early 1970s.’        

Wednesday, 15 February 2017

UK jobs market stablises but no sign yet that Brexit means EU worker exit

It's UK jobs report day once again. This month's labour market data release from the Office for National Statistics (ONS) mostly covers the three months to December (i.e. Q4) 2016 

The UK labour market stabilized in the final quarter with little overall activity on the jobs front combined with slightly weaker growth in productivity and pay. 

The total number of people in work increased by 37,000 to 31.837 million (yet another record employment rate of 74.6%). But there was no increase in the number of employees - the smallish rise in employment consists of more self-employed people (up 13,000), more unpaid family workers (up 4,000) and more people on government supported schemes (up 21,000). The level of job vacancies meanwhile was broadly flat (at around 750,000) while the unemployment rate held steady at 4.8%. 

The ONS commentary suggests the labour market is now edging toward full capacity. But if by this they mean the market is now quite tight this still isn't showing up in the pay figures. Growth in output per hour worked (aka labour productivity) dipped to 0.3%, down from 0.4% in the third quarter, and together with stable unemployment this led to a slight fall in the rate of growth of average weekly earnings to 2.6%. With consumer price inflation picking-up, UK workers are thus beginning to face another bout of downward pressure on real pay, which may depress overall economic growth in the course of 2017.   

However, there is little sign that the labour market is yet being affected by an exodus of EU born workers following the EU referendum result. Given seasonal factors the number of EU born people working in the UK was more or less flat at around 2.3 million in the second half of last year, and in the final quarter of 2016 was 188,000 higher than in the corresponding quarter of 2015. While this may suggest the UK is no longer the draw it once was for EU migrants, Brexit has yet to trigger a big EU labour exit.’ 

Wednesday, 18 January 2017

Precarious workforce bears the brunt of UK jobs slowdown

It's possible that you might read positive things about the latest Jobs Report from the UK's Office for National Statistics, mostly covering the three months September to November 2016, which was published earlier today. If so, here is a cautionary note: 

The UK labour market showed clear signs of a modest slowdown toward the end of 2016 with the precarious workforce of temps, part-time employees and full-time self-employed bearing the brunt as businesses responded to economic uncertainty following the Brexit vote. The total number of people in work fell by 9,000 in the three months to November but this includes much bigger falls in the number of full-time self-employed (down 49,000), part-time employees (down 60,000) and temps (down 35,000). Although part-time self-employment increased (up 31,000) this is likely to be due to more under-employment among the self-employed unable to find enough hours of work. Only a sharp rise of 143,000 in the number of economically inactive people prevents the weaker jobs numbers from showing up as higher unemployment, the number of jobless people actively seeking work in fact falling by 52,000. Don’t be fooled, therefore, by apparently good headline news of falling unemployment and higher nominal wage growth (up to 2.7% excluding bonuses), the jobs market is at present slowing not growing, as those in precarious work know only too well.   

Wednesday, 14 December 2016

Sharp rise in number of inactive jobless cuts headline unemployment as private sector job creation falls

I have just had a quick look at the latest official UK monthly Jobs Report, mostly containing data for the three months August to October 2016, published earlier today by the Office for National Statistics (ONS).  

The UK labour market finally appears to be suffering a bout of post-Brexit vote blues which is now hitting recruitment. The number of people employed in the private sector has fallen by 17,000 and vacancies have leveled off, though an offsetting rise of 12,000 in public sector employment (mostly in education and the NHS) has limited the fall in both the overall job total and the employment rate, which is down a tick at 74.4%.

Despite this headline unemployment is down 16,000 to 1.616 million (a rate of 4.8%) on the quarter but only because the jobs slowdown is disguised by a sharp rise of 76,000 in the number of people out of work who are economically inactive. This masking effect of inactivity is particularly noticeable in the youth labour market, disguising a fall of 33,000 in the number of 18-24 year olds in work. The bad news on jobs is alleviated by a pick-up in the nominal rate of growth of average weekly earnings for people in work (now up to 2.6% excluding bonuses) albeit the real benefit of this is to some extent being offset by higher consumer price inflation. Whether one looks at jobs or real pay growth, therefore, the UK labour market looks to have entered a somewhat slower time.          

Wednesday, 16 November 2016

Still no obvious sign of negative Brexit effect in official UK jobs report as unemployment falls again boosting pay rises despite another dip in productivity growth

The UK Office for National Statistics (ONS) has just published its latest monthly update on the labour market with data mostly covering the quarter July to September.  

The initial observation is another month and still no obvious sign of Brexit in the official labour market numbers. Employment is up 49,000 on the quarter with a further fall in unemployment of 37,000 cutting the headline jobless rate to 4.8%. Job vacancies are also up while redundancies have held steady.  The only possible sign of a cooling in the market is a somewhat slower pace of job creation and a quarterly rise of 49,000 in the number of economically inactive people which has meant a relatively small increase in jobs could still reduce unemployment, albeit the ONS finds no evidence of any post Brexit vote fall in migrant workers. 

As a result the UK labour market continues to tighten, giving a boost to pay growth (average weekly earnings are now growing at an annual rate of 2.4% excluding bonuses) even though the ONS estimates that the rate of growth of hourly labour productivity dipped from 0.6% to 0.2% between the second and third quarter of the year. Overall therefore the labour market looks to be in pretty good shape and there is nothing to indicate that Brexit uncertainty has hit hiring or resulted in greater firing. However, with Brexit unlikely to aid productivity growth in the short run at a time when higher price inflation is also in the pipeline even a strong labour market may struggle to deliver sustained real wage improvements for most UK workers.”

Wednesday, 19 October 2016

Small rise in level of UK unemployment should not be seen as ‘canary in the coalmine’ for future adverse effect of Brexit vote

The UK Office for National Statistics has just released the latest official jobs report, mostly covering the three months June to August 2016

There has been a small quarterly rise of 10,000 in the headline level of unemployment. This is disappointing news but should not be viewed as a ‘canary in the coalmine’ for any future adverse effect of the Brexit vote. Brexit may yet lead to a weaker jobs market but these latest figures are generally still very strong. 

The number of people in work increased by 106,000 in the quarter while vacancies remained fairly steady. Unemployment only increased because of a 116,000 quarterly increase in the supply of labour; the unemployment rate in fact remained unchanged at 4.9%. 

On the downside there has been a slight increase of 15,000 in the level of redundancies, but this will include continued public sector downsizing as well as any early confidence effect of the Brexit vote. Meanwhile the rate of growth in average weekly earnings excluding bonuses ticked up a bit to 2.3%, another positive sign albeit  the faster pace of consumer price inflation is now dampening growth in real pay.  

Friday, 22 July 2016

Pseudo Say's law and the secret of George Osborne's jobs record

All political careers, it's often said, end in failure. But this never stops departing politicians from putting a gloss on their own professional obituaries.

When earlier this week the Office for National Statistics (ONS) published strong headline figures for the UK employment rate (which in the March-May quarter reached yet another record high of 74.4%), the unemployment rate (down to an 11 year low of 4.9%) and the economically inactive rate (now at a record low of 21.6% for people of working age) former Chancellor of the Exchequer George Osborne was quick to draw attention to the 2.5 million net jobs created during his six year stint at HM Treasury. Yet while Mr Osborne is fully entitled to highlight why many economists, myself included, underestimated the speed and strength of private sector job growth since 2010, I'm not sure he can, or maybe even should, take much credit for this.

The so-called 'jobs miracle' of recent years is attributable to the cumulative effect of a combination of supply side measures introduced over three decades by successive Conservative and Labour Governments, which Mr Osborne inherited. These range from employment deregulation to active welfare to work measures and a largely open door attitude to immigration. UK employment policy has over time succeeded in pushing an ever greater supply of labour into the market and ensured that that supply is translated into employment. This occurs either through workers pricing themselves into jobs or becoming self-employed, or by employers creating jobs to make use of the abundance of labour available.

The UK labour market mechanism thus operates on the basis of a kind of pseudo Say's Law whereby labour supply serves to create its own labour demand. However, while this will always tend to propel the economy toward full employment, in the absence of sufficient aggregate demand for goods and services it does so by making the economy more labour intensive, thereby depressing growth in productivity and real wages. The result is full-employment but of a kind far different from that we once aspired to.

What does this mean for how we should view Mr Osborne's jobs record? It's not entirely clear what if any supply side policy changes Mr Osborne, or indeed the governments in which he served, made to improving the functioning of the labour market. My conclusion is that the jobs growth we have seen is entirely due to policy measures which pre-dated his tenure in office. What Mr Osborne did of course preside over was 6 years of steady, albeit slower than expected, fiscal consolidation - the policy his critics call 'the economics of austerity'. How successful the former Chancellor was at that is for historians to determine but one can say that in dampening aggregate demand in the economy he served to take us on a low-productivity, low real wage growth, path to full-employment.  We could, and should, have done better.