Initial thoughts on Covid-19 and UK jobs

Earlier today the UK’s Office for National Statistics (ONS) published its latest monthly report on the state of the labour market. These fairly healthy figures mostly refer to the period up to January 2020, before coronavirus Covid-19 spread beyond China to achieve pandemic status. This is therefore one of those times when our positive rear mirror view of the labour market offers little comfort given what we anticipate will obviously be a very rocky road ahead.

Employment was growing strongly at the start of the year (up 184,000 in the three months to January, reaching a record equaling rate of 76.5%). This was not enough to prevent a rise of 63,000 in unemployment – with the jobless rate also up slightly to 3.9% - but only because of a big fall of 175,000 in the number of people leaving economic inactivity in order to seek jobs. There were more jobs in both the private (up 169,000) and public (up 15,000) sectors and although the rate of growth in average regular weekly earnings slowed to 3.1% this delivered 1.5% real terms pay growth. However, it now looks inevitable that the global and local economic impact of the coronavirus on aggregate demand will hit the labour market with at least as much immediate force as the Great Recession just over a decade ago.

It’s too early to assess how much of the impact will fall on jobs as opposed to cuts in hours of work or pay and it will be a few months before the outcome starts to register in ONS figures. Previous recent experience suggests that such a mega shock to the economy has the potential to reduce total employment by between 500,000 and 1 million. But we don’t really know how the global economic supply and demand side dynamics triggered by a natural phenomenon like Covid-19 will actually play out, nor how effective traditional tools of economic management will prove to be in coping with the effects even if wartime levels of financial firepower are devoted to the struggle.

Moreover, assuming government action succeeds in providing enough support to ensuring that fundamentally strong businesses survive to fight another day, there will still be a shortfall in demand for labour while the crisis lasts. It is thus difficult to be optimistic about job prospects in the short-run.

Low unemployment at the onset of the crisis offers some hope that employers will adjust to falling demand in ways that avoid mass layoffs for fear of not being able to recruit staff once the malaise has eased, albeit the weakening of employment protection legislation by the Coalition government between 2010 and 2015 risks a bigger shake-out of jobs than experienced in the recession of 2008/9. Similarly, initial indications suggest that jobs are particularly vulnerable in consumer facing private sector services affected by restrictions on travel or public gatherings. These sectors are not only major employers, the driving force of the so-called ‘jobs miracle’, but also make considerable use of flexible contract workers who are relatively easy to stand down when demand falls. Remember, what the flexible jobs market giveth, it can easily taketh away.

Either way, perhaps the best we can expect, assuming an optimal fiscal, monetary and welfare policy response, is a very sharp rise in unemployment (or some combination of higher unemployment and increased economic inactivity) throughout much of 2020 followed by an equally sharp fall in 2021, if by then the deadly potency of Covid-19 has finally started to subside.      

"Thanks for having me!" - No Thanks!

Admit it, we all have our pet hates. Mine are too many to mention. But I’m particularly bugged by a new one. Listen to almost any broadcast media interview – TV, radio, podcast – and you’re likely to hear the interviewee begin by excitedly proclaiming “Thanks for having me!”. This tendency has crept in steadily during the past decade, at first gradually, latterly becoming ubiquitous, seemingly spreading faster than the coronavirus.

I’m not sure how the infection started. I think we can rule out a sudden outbreak of politeness, since the opposite seems to be the case for other forms of public discourse in the social media era. My hunch is that professional media training is the initial source. Presumably some former hack, gainfully employed teaching fledging advocates how best to get their point across, found members of focus groups responded favourably to interviewees who sounded grateful to be on the airwaves. If so, I reckon there are probably as many people who, like me, immediately dismiss the views of those who express such fawning gratitude.

When my children were young, their friends would invariably say “thanks for having me” at the end of a party or the morning after a sleepover. This was rightly courteous and I expected my own kids to behave likewise. But adults conversing in the public sphere should grow up and demonstrate greater confidence in themselves.

People are invited onto TV or radio programmes because the producers of such programmes consider their contribution of some value in terms of expertise or news worthiness. They are not being offered a favour or treat, so why behave as if they are?

I fear this reflects a wider trend toward thinking of news and current affairs broadcasting as a branch of the entertainment industry. The wag who once quipped that politics is showbiz for ugly people might now also conclude that media appearances give a taste of c-list celebrity to academics, experts and commentators. Worst of all in this respect is the egotistical contributor who flags-up an appearance with pre or post interview tweets, maybe with a selfie alongside their interviewer thrown in for good measure.

I long for a return to seriousness, with interviewees aware that they have both a serious role to perform and are deserving of being heard because they bring something important to the interview. Assuming this task is fulfilled, it is the interviewer, and the listener, who should be giving thanks.     

Bye, Bye EU - some thoughts at the time of Brexit

I haven’t blogged for quite a while. Brexit Limbo sapped my enthusiasm, not to mention the seeming pointlessness of expressing a measured opinion in a time of polarised debate. But with the UK’s departure from the EU due to begin in earnest late on Friday this week I feel ready to start writing again, not just on economics but on anything that takes my fancy (you have been warned!).

As for Brexit itself, I’m neither happy or too sad. I voted Remain in the 2016 Referendum because the risks of leaving a powerful trading bloc after decades of integration look considerable when compared to any proposed benefits. Not surprisingly, therefore, I won’t be rejoicing with the pro-Brexit enthusiasts as they dance around Big Ben or whichever alternative percussive devices are available. Yet I won’t be crying into my favourite high strength Belgian beer, either. This is partly because, like it or not, Brexit respects the outcome of the Referendum. I always opposed a second vote, which smacked of telling people that their vote only counted if it delivered the ‘correct’ (i.e. pro-Remain) choice. In addition, however, I have always been a rather reluctant European, a pragmatist rather than a Europhile.

I was only 16 when the UK joined the European Economic Community and to be honest not that interested (my social hinterland being somewhat wider than that of today’s kid’s army of wannabe Greta Thunbergs). By the time I went to university the 1975 Referendum had given solid public support to membership of the ‘Common Market’, any debate amongst my undergraduate associates on the subject largely confined to whether within the European fold the UK would steer more toward the Social Market or Social Democracy.

Thatcherism then totally upset the apple cart by demolishing the UK’s post-war settlement, with those like me opposed to a de-regulated free-for-all turning enthusiastically to the EU to safeguard minimum standards, notably in the realm of individual employment rights at a time when collective rights were being watered down. But this often created as many tensions as it solved. UK business culture and the legal system never really gelled with continental norms, creating frictions that tested the guiding EU principle of subsidiarity to the limit. Moreover, anybody who has sat through EU deliberations on policy matters would surely attest the clash between the plain-speaking British empiricist culture and the esoteric philosophical language favoured by representatives of some of the other powerful member states.

As my experience of such matters developed, my inclination leaned firmly toward a Europe consisting of trading relations between independent nation states. But it was difficult to swim against the prevailing tide of my pro-Maastricht contemporaries who increasingly took an almost Panglossian view of all things European to argue that nirvana lay in full-blown economic and monetary union and closer, not looser, political integration.

My underlying reservations nonetheless grew stronger in the early 2000s. Having initially been persuaded of the merits of the Euro currency, it became apparent that the institutions and rules governing the eurozone were more likely to stifle than support economic growth and employment (a view reinforced by the subsequent turmoil experienced by several member states after the 2008 financial crisis). The UK had been wise to remain outside. Then in 2004 came EU enlargement. This in itself made sense. But I seriously doubted the wisdom of extending the principle of freedom of movement of labour to a bloc of countries with such a wide divergence of income levels. I remain convinced that the resulting mass migration of EU labour to the UK is the main reason why Vote Leave won the Referendum in 2016.

As a pragmatic Remain voter, I would prefer a reformed EU to Brexit. But we are where we are and the imperative now is to make the most of Britain’s post-Brexit future. Some fellow Remainers, especially the most ardent Europhiles, will doubtless be tempted to run a rhetorical Re-join campaign. I would rather they campaign instead for a Better Britain.

UK labour market gets even more puzzling

Judging by the latest official figures for the final quarter of 2017, published this morning by the Office for National Statistics, you clearly can’t have it all in the UK labour market at the moment. And the economic puzzles get even more perplexing. 

Pay growth, the source of most of the bad news in recent months, picked up from 2.3% to 2.5% at the end of 2017 when measured by growth in average weekly earnings excluding bonuses. The corresponding real pay squeeze in turn eased, from a cut of 0.5% to 0.3%. But while this might suggest either a tightening in market conditions or an improvement in labour productivity, the opposite has happened. 

The rate of job growth slowed in the final quarter of last year (the economy added only 88,000 net new jobs), unemployment increased by 46,000, the total number of hours worked fell by 0.3%, while growth in output per hour worked (i.e. labour productivity) dipped from 0.9% to 0.8%. 

In other words, a labour market that struggled to boost pay when getting tighter, just saw pay strengthen when conditions got a bit weaker. This pattern is difficult to explain, though may become clearer as more data become available. However, it clearly adds to the conundrums facing economists, not least those at the Bank of England when they next consider if and when to raise interest rates.      

Latest ONS Jobs Report offers a very mixed yet familiar picture of the UK labour market

The UK Office for National Statistics this morning published its latest release of data on the state of the labour market (which British commentators, influenced by the US BLS monthly equivalent, increasingly refer to as the official UK 'Jobs Report'). These latest (mainly rolling quarterly) data  relate mostly to the three months to November 2017.

The picture painted by the release is very mixed.

After a period of contraction in the overall size of the UK workforce, the number of people participating in the labour market expanded by 99,000 to 33.64 million in the latest quarter, mostly due to a fall of 79,000 in the number previously economically inactive. 

Employers who have recently been struggling to hire staff took full advantage of this, enabling employment to rise by 102,000 to 32.21 million, lifting the employment rate back to a joint record high of 75.3%. But with job creation only slightly higher than growth in the labour supply, unemployment is little changed (down just 3,000, at a rate of 4.3%). As a result, the degree of tightness in the labour market is also unchanged, although with the balance of job creation in the latest quarter tilted strongly toward full-time jobs for employees (up 173,000) and away from self-employment (down 82,000) the rate of growth of average weekly earnings excluding bonuses has ticked-up to 2.4%. Unfortunately, however, higher price inflation at the end of 2017 more than wiped out this improvement, intensifying the squeeze on real wages which fell by 0.5%. 

The resulting pattern is thus very familiar – record jobs and a low rate of unemployment but still less spending power for the average worker.

Falling UK employment - a labour supply story

The latest official UK jobs figures (for August to October 2017) show a quarterly fall of 56,000 in the number of people in work (lowering the employment rate from 75.3% to 75.1%), a small fall in the number unemployed - leaving the unemployment rate steady at 4.3% - and a very slight pick-up in nominal pay growth (i.e. average weekly earnings excluding bonuses) to 2.3%, with real pay once again fallen by 0.4% once adjusting for consumer price inflation.

However, although the figures suggest the jobs boom of recent years has come to end this is due to emerging weakness in the supply of employable people to the labour market rather than a fall in demand from employers. 

Redundancies are still on the decline (down 11,000 on the quarter) and unfilled vacancies have risen to yet another record high of 798,000; but the rapid growth in labour supply of recent years has seemingly gone into the reverse. The total labour supply as measured by the economically active population aged 16 and over fell by 82,000 in the quarter. The main reasons for this are a sudden surge in economically inactive student numbers (up 35,000, 1.5% on the quarter ) and a fall in the number of citizens of the central and eastern European countries (the A8) that joined the EU in 2004 (the number of people born in these countries fell by 35,000, -3.2%, in the year to the third quarter). 

In principle, this drop in available labour should be good news for unemployed jobseekers. The steady unemployment rate may therefore indicate a lack of employability on the part of the remaining pool of unemployed. Assuming no overall weakening of demand for workers, or renewed growth in supply, the labour market is thus likely to show greater signs of tightening in the coming months which, fingers crossed, should mean somewhat better news on the pay front.

Much better news on UK labour productivity offers hope for better pay prospects in 2018

The latest official jobs and productivity figures, published earlier this morning by the Office for National Statistics, suggest that UK employers are finally having to respond to much tighter labour market conditions as the economy edges closer to full employment. 

Although the economy continued to grow, there was no net hiring in the third quarter of the year (total employment fell marginally, by 14,000), with businesses cutting full-time jobs and switching to increased use of part-time workers. The combination of an overall fall in total hours worked (down 0.5%) and continued growth in output saw a very welcome quarterly surge in output per hour of 0.9% - the fastest rate of growth in labour productivity for six years. For the time being there is still no sign of a corresponding improvement in pay, with growth in average weekly earnings steady at 2.2% and real earnings still falling against a backdrop of high consumer price inflation. However, the likelihood of sustained improvement in productivity as employers continue to adjust to tighter labour market conditions offers hope of better pay prospects in the coming years albeit we are unlikely to enjoy job growth at the rapid pace seen since 2012.