As risks to the global economy increase, these cuts are all the more dangerous
The unemployment rate is now 5.4 per cent, the lowest for seven years. While private sector earnings growth has seemingly ceased to accelerate, it remains around three per cent. Given CPI and RPI inflation around zero and 1 per cent respectively, real earnings growth is at face-value respectable.
All of that said:
- it’s about time
- many are still missing out and structural changes mean for many others work has become a much harsher ordeal
- there is room to do much better, but this is not permitted by government spending cuts
- the weakening of the economy remains a threat
The economic recovery has been underway really since the Olympics, most likely motivated by global and domestic monetary stimulus. Since then, the labour market has been characterised by strong employment growth; but much of this has been concentrated in lower quality, more insecure and lower paid work. As is widely recognised, real earnings have seen their most severe decline since records began in Victorian times.
These factors are still far from undone. Most obviously the share of full-time employees (i.e. those not in self-employment or part-time work) remains significantly below pre-crisis rates (click to zoom):
Full-time employees as a share of employment
In the second quarter of 2015, 3.1 million were underemployed, up from 2.3 million ahead of the crisis in the same quarter of 2008.
And while there has been a revival in earnings, there is still a long way to go before real earnings even return to pre-crisis levels – let alone to see the steady year-by-year growth that is normally associated with economic growth. In fact, separate ONS figures show real earnings gains now stalled (click to zoom):
Moreover, as discussed on many occasions, ultra-low inflation is not a sustainable way to real wage growth, and is indicative of wider risks to the economy.
At a more detailed level, there is evidence of employment gains being disproportionately concentrated in lower-paid industries. For public sector workers, the pain is obviously the most severe.
Nor have job gains been shared evenly across the country. TUC analysis showed that over 2010-2014 employment in London grew by three times a much as in the rest of the country.
But, fundamentally, much of this pain has been unnecessary and as a result there is significant room to do better.
Spending cuts have restrained economic growth by more than anticipated, and as a result many workers remain idle when they want work or stand ready to do more or better work.
The government could – rather, should – act to expand the economy and provide this work. But instead they remain committed to continuing politically-motivated austerity policies, amounting to the most severe spending cuts since the 1920s.
As risks to the global economy increase, these cuts are all the more dangerous. The ultimately very limited gains of recent years are far from secure.
Geoff Tily is a senior economist at the TUC
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