Wednesday 20 February 2013

Our astounding 'jobs boom, pay slump' economy

I’ve just spent another morning trawling through official statistics on the UK economy. The jobs market continues to astound. We are in a middle of both a jobs boom – all full-time in the final quarter of 2012 - and a pay slump as jobseekers struggle to gain or retain employment in a stagnant economy by pricing themselves into work. Average earnings are rising by just 1.3% against a backdrop of 2.7% consumer price inflation – and as the Bank of England warned last week inflation is going to remain stubbornly high for some time to come.   

This is unlike anything seen in this country since the Second World War, with the economy using more and more people at falling real rates of pay to produce a static level of output. For the time being this looks like a decent trade-off if the alternative is even higher unemployment. But a low productivity/low wage economy is very much a second best outcome and is just as much a sign of economic malaise as a longer dole queue.

It’s disappointing that strong quarterly employment growth of more than 150,000 did not translate into a bigger fall in unemployment (which dropped by only 14,000). But at least this indicates the success of government welfare to work measures in ensuring jobless welfare claimants leave economic inactivity to enter the labour market in ever record numbers.

Policy impacts are also evident in modest signs of improvement in the number of long-term unemployed and, in particular, a sharp quarterly increase of 66,000 in employment for young people aged 16-24 not in full-time education. The fact that this has coincided with a fall of 37,000 in employment of 16-24 years in full-time education suggests that the Youth Contract, which offers wage subsidies to employers hiring young jobless people from the benefit roll, is aiding the policy target group at the expense of other young people.

Older people are doing even better in finding employment, though this is as much a symptom of the desperate need of many to keep working in order to supplement squeezed pension incomes. But don’t be fooled that older people are taking jobs from younger jobless people. This is simplistic. Ultimately, in a dynamic jobs market like that of the UK helping more people into work helps create more work overall. The generations are collaborators, not competitors.  


  1. I’m just not sure how we can have rising employment and lower productivity. What are people doing at work?

    Anecdotally I’m told people are working as hard as they’ve ever done, yet we produce less.

    Something seems odd here.

    I think we have to look at how ONS are collecting the statistics, and what is the ONS’s definition of employment.

    As far as I am aware, people on workfare are counted as being employed.

    If this is the case, how do the ONS justify this – these aren’t what I would call paid jobs, and well below minimum wage.

    1. Thanks Gordon

      I don't think anybody yet has the answer to your first question - hence the unsolved 'productivity puzzle'. The IFS and Bank of England, as well as the ONS, have recently published material on the subject.

      I have argued that DWP/ONS should provide an analysis and estimate of the impact of 'work for benefit' on the employment statistics, to aid public understanding. But this can't account for more than a fraction of the total rise in employment in the past year. This, I admit, is extraordinary and requires further analysis but I think it 'genuine' in the sense that what we might all consider to be 'proper jobs' are being created.

      Cheers, John


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