More positives, but this remains far from a normal labour market

Positive labour market figures are to be understood in the context of the post-crisis period as a whole and must not detract from the long-standing pressures on working people.

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Positive labour market figures are to be understood in the context of the post-crisis period as a whole and must not detract from the long-standing pressures on working people

For the sixth quarter in a row, employment rose and unemployment fell.

The employment rate at 73.0 per cent remains at its pre-crisis peak, though the 6.0 per cent unemployment rate is still above the rate of 5.2 per cent ahead of the crisis, amounting to around 300,000 people.

Earnings growth is up a little. It is very early days, but very low inflation figures could mean real earnings are up too.

Any recent gains must be set against large scale underemployment, the undermining of the rights and conditions of working people and seven years of falling real earnings, as well as emerging deflationary considerations.

Opinion surveys show people are not feeling it, even if the data may be improving,

The ONS have estimated that in 2014, just under one in ten, or three million people, employed in the UK wanted to work more hours than they are currently employed to do and are therefore classified as underemployed. Over recent years there has also been a tendency to part-time and self-employed work, but these are less apparent in the latest figures.

One way of looking at underemployment is through the extent of changes in part-time and self-employment against full-time employees.

Repeating the chart for last month’s report shows the change in employment in the latest quarter wholly accounted for by full-time posts, but these changes are very volatile from quarter to quarter.

Overall, since the government took office, around 60 per cent of jobs created have been full-time employees; the remaining 40 per cent are self-employed and part-time.

Chart 1: Change in employment, quarter compared with previous quarter, thousands

graph1

The chart also shows that the overall rate of increase in employment in the latest two quarters is down from the headier figures at the turn of the year.

Earnings growth has now risen for the fourth consecutive month; with falls in inflation, there is the finally prospect of gains in real earnings. But any such gains are hardly firmly based.

Moreover, low inflation figures are not the unambiguous good news that the majority of any commentary suggests.

The average weekly earnings (AWE) annual rate (three month) in ‘regular pay’ is 1.6 per cent, up from the recent trough in June of 0.7 per cent. While this is the highest figure for two years (since October 2012, when 1.7 per cent), it follows a period of exceptionally low rates.

In its own right 1.6 per cent is exactly in line with an average post-crisis rate (since 2009), and way out of line with the growth of earnings before the crisis.

Chart 2: Consumer price and earnings inflation, 12-month rate

chart2The chart also includes headline CPI figures, with the November figure showing annual inflation of 1.0 per cent, the lowest figure for 12 years (this extends one month beyond AWE figures).

In October regular earnings growth of 1.7 per cent fell below CPI growth of 1.3 per cent for the first time since the severe reduction in price and earnings inflation over 2008 and 2009.

More generally the chart shows how, relative to the post-crisis period as a whole, the primary factor behind the implied rise in real earnings is the reduction in inflation rather than significant gains in earnings growth.

Commentary on the latest inflation figures concentrates on reductions in food prices and at the petrol pump, as supermarkets fight it out and oil price falls feed through.

But the ‘core’ inflation measure (which excludes energy, food, alcohol and tobacco) also shows a significant reduction to 1.2 per cent in November from 1.5 per cent in October, and was last lower in 2006.

With policymakers and commentators repeatedly surprised by inflation, there is more to outcomes than one-off factors.

This significant and quite abrupt reduction has taken headline figures into territory that must be uncomfortable for the Monetary Policy Committee, not least given the (likely imminent) obligation on the governor to write a letter to the chancellor when inflation falls below one per cent.

An important factor in this episode of low inflation is likely to have been the prolonged low earnings growth since the crisis, and hence in household spending power.

Inflation may offer some relief for spending power, but reductions in earnings, incomes and spending power set inflation in this territory in the first place (at least in part). This chicken and egg situation is far from straightforward and not necessarily benign.

So while any positive labour market figures are to be welcomed, they must be understood in the context of the post-crisis period as a whole and must not detract from the severe and long-standing pressures on working people.

For these reasons, in Decent Jobs Week the TUC are calling for:

  • Improved rights for zero-hours workers, with more jobs offering guaranteed hours
  • The same decent employment rights for all
  • Equal pay for agency workers
  • Better enforcement of workplace rights for low-paid, vulnerable workers
  • Better access for all workers to union representation and collective bargaining

Geoff Tily is a senior economist at the TUC

2 Responses to “More positives, but this remains far from a normal labour market”

  1. Julia

    Sorry to go off topic before the thread even starts. An interesting book review – see link.
    http://bellacaledonia.org.uk/2014/12/18/the-liberty-tree/

  2. Norfolk29

    Excellent article. I wish the “Decent Jobs Week” well and am glad I am not part of the labour force now as it just seems to have got worse since my days of employment. I had thought that the 1970’s with the “three day week”, and companies which appeared to have been around for generations, vanishing into bankruptcy before my eyes was bad enough, but it just seems worse now and I wish there was some concept of how my grandchildren are going to make a living.

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