With the latest monthly
official UK labour market statistics due out on Wednesday this will be one of
four weeks between now and the General Election is which jobs are likely to be
particularly prominent in political debate. The Prime Minister, David Cameron, is
due to kick things off later today in a speech setting ‘full employment’ as a
policy goal, with a pledge to propel the UK employment rate – the proportion of
people of working age in a job – to the very top of the developed economy
league table, ahead of the likes of Germany which currently enjoys an
employment rate of 74%.
Mr Cameron is understandably
keen to make much of the remarkably strong employment growth enjoyed in the
past two and a half years, though as I have noted before in this blog it’s
difficult to attribute this outcome to any specific policy measures introduced by
the Conservative- Liberal Democrat coalition government since 2010.
The scale of job losses
across both the public and private sectors resulting from fiscal austerity has
turned out to be roughly what I expected following Chancellor of the Exchequer
George Osborne’s first budget. What I hadn’t expected was the speed of
offsetting job gains – I knew new jobs would come but thought this would take
longer on the assumption that the rate of growth in labour productivity would
remain close to its long-run trend. But as we now know the labour market
response to deficient aggregate demand was most unusual. Pay took far more of
the strain of adjustment, resulting in a prolonged productivity slump, while
there was also an exceptional surge in the number of people becoming
self-employed and working on very low average incomes.
Insofar as the pay squeeze and
rise in self-employment is the consequence of policy effects the cause has been
flexible labour market measures implemented by successive governments over the
past three decades. The only policy introduced by the Conservative-Liberal
Democrat coalition I think might eventually be found to have been significant
is the watering down of employee rights against unfair dismissal which took
effect in 2012. This was overseen by the Lib Dem Business Secretary, Vince
Cable, somewhat ironically given that Dr Cable is currently talking up his
worker friendly credentials with an eye to what the post-Election parliamentary
configuration might bring. By making it easier to fire employees, Cable’s
reform may have encouraged increased hiring during the economic upswing that
began in 2013, albeit sowing the seeds of a sharp firing spree were we to see
another serious downturn.
Either way, good news on
jobs has been enough for some to start speculating on when the economy might
reach a state of full employment – hence the Prime Minister’s bullish speech
today. At a superficial level one can see why. For example, at present I expect the working age UK
employment rate to reach a new record high (on current measurement) of above
73.5% at some point this year, bringing Mr Cameron’s aim clearly into view. I
also expect unemployment to fall back to or below the pre-recession rate of
5.2%. However, I would not consider this as anything more than a partial step
toward full-employment.
Although a 5.2% unemployment rate is in line with many estimates of the long
run sustainable rate, still very muted wage pressure as unemployment has fallen
rapidly to the current rate (6%) suggests that the jobless total might now be
able to fall well below 5% before threatening the government’s 2% CPI inflation
target. I therefore conclude that the UK will remain far short of full employment
for some time yet.
Moreover, even a new record high employment rate would at present occur
in a labour market characterised by a relatively high rate of underemployment,
a still high youth unemployment rate, an unemployment pool with over 1 in 3
people long-term unemployed, around 2 million economically inactive people
expressing a desire for work, and a large segment of the workforce employed in
low productivity jobs paid at or close to the National Minimum Wage. This does
not constitute a state of ‘full employment’ in any genuine sense of the concept.
On the contrary, what we currently have is a labour intensive UK economy
with endemically slow growth in both productivity and pay combined with deeply
ingrained pay inequality. This is in other words a Dorian Gray economy, the
admired façade of seemingly approaching full employment hiding a far from
perfect reality. In an economy where poverty pay and use of zero hours
contracts is rife, talk of ‘full employment’ rings hollow. For all the good
news on jobs, the focus of policy debate in the coming weeks should be firmly
on the reality rather than the façade.
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