The Coalition's jobs record - good or bad?

It's chilly outside today, so just as well I've put my anorak on, made a mug of tea, and had a look at the latest monthly jobs release from the Office for National Statistics (ONS).

The quarterly figures for May-July, showing a rise of more than 230,000 in the number of people in work, are remarkably good, indeed near miraculous for an economy in a double dip recession. Okay, so unemployment fell by only 7,000 but this was dampened by an extra 180,000 people entering the labour market to compete for jobs, so a decent outcome in the circumstances. I've commented elsewhere today on how one might explain this apparent puzzle of 'jobs without growth', which I think is due to a structural change in the operation of the labour market. However, this month's jobs stats are particularly useful since they show what's happened in the first  full  two years since the Coalition government was formed in May  2010.

I hesitate to call this the 'Coalition's jobs record' since it's not entirely clear what if anything it says about the impact of current government policy. But since politicians take both undeserved credit and flak for what happens on their watch, the title seems appropriate. Moreover, given that ministers can at present point to upbeat jobs figures when concerns are raised about the state of the wider economy, it's worth considering just how strong the jobs market really is.

The good news is that there are around 440,000 more people in work than two years ago, despite the public sector having shed 400,000 jobs (adjusting for classification changes which make comparisons tricky). Private sector employment is therefore up by 840,000 - some achievement given that the economy has, according to the ONS's GDP estimates, barely grown at all in that time. Admittedly, much of this extra private sector employment (some 60%) is self-employment, often undertaken by people who would prefer to be in work as employees but for whom 'going it alone', even with all the insecurity involved, is better than unemployment. Many of the new jobs are also part-time and/or temporary, though contrary to popular perception full-time employment accounts for well over half the total increase.

The bad news is that the increase in employment still hasn't been large enough to prevent an overall rise in the level of unemployment, which is almost 120,000 higher than when Mr Cameron and Mr Clegg famously got together in the Downing Street rose garden. And the number of unemployed people chasing each job vacancy has risen slightly too, from a national average of 5.2 to 5.5. Consequently, there is more slack in the labour market than in 2010, which is why so many jobless people are struggling to find work and so many workers feeling the financial pinch because of limits on pay or hours.  Employment may be rising and unemployment falling but the jobs market is still very low on demand, with the 8.1% unemployment rate  probably some three percentage points above what the UK economy could achieve at full capacity. This is an awfully big waste of human resource and output, and crying out for more purposeful policy action.  









 

Unions have a progressive part to play

Talk of strikes at the annual TUC conference, which kicked off in Brighton earlier today, must be good news for The Strawbs. While most long-forgotten Seventies rock-bands rely on Never Mind the Buzzcocks to remind people they once existed, the merest hint of industrial unrest results in an airing for Part of the Union.  For a time the turntables were silent but with a new generation of union bosses confronting the government over its general economic strategy as well as cuts to public sector jobs, pay and pensions there is a renewed mood of hostility.

We shouldn’t, however, get carried away with the idea that the UK is on the verge of a new period of union power. Although I’ve stated consistently since the last General Election that some kind of ‘general strike’ is likely before the end of this Parliament, this will struggle to be as disruptive as in times past. Having reached a peak of 12.2 million in 1980, the TUC tells us, union membership has more than halved to below 6 million as employment has switched away from manufacturing to services and legislation curbed union power, with the bulk of union members now confined to the public sector. Consequently, despite having the ability to directly challenge the impact of fiscal austerity in the workplace, union influence is nowadays felt mainly in its contribution to debate on economic and social policy, as demonstrated this morning in outgoing TUC General Secretary Brendan Barber’s well-constructed Olympic themed critique of a Plan A that shows no sign of working.

The trade unions are thus relatively impotent, even though those who know and welcome this still like to talk up the threat of union militancy whenever politically convenient to do so. This relative weakness is not a wholly bad thing. Unions have at times in our history abused their role, which as a result has necessarily had to be tempered by appropriate legal restrictions to ensure that they behave responsibly.  The current treatment of unions in UK law would therefore seem about right. Yet wanting to go further by introducing further curbs so as to effectively paint unions out of the national picture would surely be wrong.

Experience shows that responsible trade unions, working in partnership with employers, should be embraced rather than treated with suspicion. Unions can act as an important channel through which organisations build strong engagement relations between management and workers that help raise productivity and improve the quality of working life. Moreover, unions can limit the worst aspects of exposure of workers to market pressures which if totally unchecked can lead to excessive disparity in the distribution of incomes.

It is no coincidence that the slump in union membership has accompanied a steady fall in the share of national income received in wages relative to profits. In the mid-1970s wages and salaries accounted for 65 per cent of UK gross domestic product. Today the figure is hovering just above 50 per cent. This may be of little concern to ardent neo-liberals who believe that allowing labour markets to clear is good for jobs and a higher profit share good for investment. But those of us concerned about the impact of this for low skilled workers and the public finances in an economy where levels of business investment disappoint in time of boom as well as slump, take a different view.

The consequences have been highlighted in recent days with the emergence of the wonkish concept of ‘predistribution’ into UK political debate. It’s very costly to maintain a large proportion of the workforce by means of what is in effect ‘in work welfare’ support. Better, if possible, to ensure workers earn enough not to need such hand-outs. This, as we will doubtless hear in the coming months, can be achieved in a number of ways. A progressive role for trade unions is one of them.   

World Economic Forum helps shed light on UK jobs puzzle - and vindicates Dr Cable

Having switched radio channels last evening after listening to an arts review of the new big screen version of cop drama The Sweeney, it seemed fitting to hear that yesterday's government reshuffle handed Tory MPs Michael Fallon and Matthew Hancock ministerial roles in the Department for Business and Skills.  The prime minister has clearly decided that this duo, the political equivalents of Regan and Carter, are needed in Vince Cable's manor to put the cerebral Lib Dem Business Secretary on the ideological straight and narrow. Ironically, however, this morning's annual Global Competitiveness Report from the renowned Swiss based think tank the World Economic Forum (WEF) suggests that the newly appointed heavies have more to learn from Dr Cable's evidence based approach to policy making than vice versa.

According to the WEF, the UK has moved up from 10th to 8th place in the league table of global competitiveness, which is good news for the Business Secretary since improving business competitiveness is his principle job. But this improvement is despite the UK having slumped from 85th to 110th when it comes to the 'macroeconomic environment', political responsibility for which is down to the Chancellor of the Exchequer, George Osborne, of whom Messrs Fallon and Hancock are close acolytes. 'Physicians heal thyself' one is tempted to say, yet the more intriguing aspect of the WEF's observation is an apparent structural improvement in the performance of the UK economy during a year that has seen a return to recession, a paradox that is perhaps most evident in the unusual occurrence of a contraction in output alongside falling unemployment.

Significantly, the WEF highlights the relatively good performance of the UK labour market as an economic positive, attributing this to flexibility in the ability of employers to hire and fire staff. This is important since it contrasts with most recent explanations of the 'jobs without growth' paradox, which tend to focus on the GDP side of the equation and thus overlook the structural performance of the labour market itself. But unlike the WEF I think the strength of the UK labour market owes less to hire and fire flexibility than to the ability to match jobseekers to vacancies.

The economy has enjoyed a big increase in (private sector) employment over the past year and a fall in unemployment with hardly any net increase in the level of job vacancies. Indeed, vacancies are still down on mid-2010 levels. In other words, the labour market has been really effective at filling vacancies as they arise - probably related to ever greater pressure on jobless people to find work plus a much greater financial penalty to joblessness than ever before which provides a heightened incentive to work- even though, as a result of weak macroeconomic conditions, the economy isn't creating masses of net extra vacancies. Consequently, the labour market is at least to some extent decoupled from the macro economy, albeit prolonged weak output growth is at some point likely to have a negative impact on jobs if it results in far fewer net vacancies to fill or increased redundancies. If so unemployment will start to rise again, and I still expect this to happen in the coming months.

The combination of a powerful ability to fill vacancies with a still relatively high total rate of unemployment of around 8% also explains why the rise in employment and fall in unemployment has  been accompanied by a sharp fall in the rate of growth of average earnings. This is the opposite of what we saw in the early 1980s when profound skills mismatch and a lack of effective welfare to work measures caused structural unemployment to track upwards in line with total unemployment and thus become entrenched. At that time people in work knew that they could push for higher pay even thiough the jobless rate was around 10% because a large proportion of jobless people were not able or eager to fill vacancies (roughly 40% were long-term jobless compared to roughly a third today).

Putting all this together offers a very good news story since it suggests to me that the economy is capable of a very strong rate of non-inflationary growth and a really big fall in unemployment once we get the demand side of the macro economy fixed. But that won't be achieved by applying strong arm tactics to the Business Secretary, who seems to be pursuing a broadly sensible and rational approach to supply side policy.       

I'm Back!

As we enter September, the wettest UK summer on record looks to be turning into a glorious early autumn. And things are looking up for me too. I have finally left the CIPD and can end several months of self imposed purdah to resume my regular commentary on the state of the jobs market, both here and abroad.

It's been an odd time on the jobs scene. The economy is back in recession but the number of people in work has been rising and unemployment is falling. Puzzling indeed, and in future posts I'll be looking at all the possible explanations, including some that haven't been given much attention in public debate.

I'm also eager to see what, if anything, this week's economic policy announcements and government ministerial reshuffle might do to boost growth and jobs. I'm sceptical that a change in personnel will make much difference, especially since it looks as though the Prime Minister's turn of the political rubic cube is set to leave the biggest players where they are. But it should be an interesting few weeks with policy tensions in the coalition parties likely to mount during the conference season. I can't wait to get back in the game.