We have seen this morning another example of what is in many ways a very good performance from the UK labour market. It continues to perform in a manner which is quite different to the official economic growth statistics which have shown -0.4%,-0.3% and -0.4% in the last three quarters. So we have the conundrum of a shrinking economy apparently provided increased employment and less unemployment. Let us examine the situation.
Whilst the media concentrate on unemployment numbers in fact it is employment numbers that are the most significant number and they are not as interlinked as you might think. For example there is also the category marked inactivity which can grow or shrink so that the relationship between unemployment and employment can vary and that is before we get to population changes.
If we look at the latest situation for the UK we see this.
The employment rate for those aged from 16 to 64 was 71.3 per cent, up 0.5 on March to May 2012 and up 0.9 on a year earlier. There were 29.59 million people in employment aged 16 and over, up 212,000 on March to May 2012 and up 510,000 on a year earlier.
As you can see we have unalloyed good news here at this point as the number employed has risen. However we need to have a nuance to this as a lot of the rise is from part-time work as shown below.
the number of people in full-time employment increased by 88,000
the number of people in part-time employment increased by 125,000
If we wish to see a greater perspective on this subject the Office for National Statistics also gave us figures for what has happened over the credit crunch era of the last five years.
the number of people in full-time employment fell by 355,000
the number of people in part-time employment increased by 724,000
So what we have been seeing over the credit crunch period is a switch from full-time to part-time work. This does begin to take a little off the gloss provided by the numbers. After all whilst many will be grateful for some work in such times I am also sure that plenty will have preferred a full-time job. Unfortunately we do not have the “underemployment” measure that is called U-6 in the United States which looks to measure such changes. It does look though that we have a similar pattern to the United States in this respect.
So looking under the lid we have seen some growth in full-time employment but much of what we are seeing is a rise in part-time employment.
Real Wages continue to fall
If we look at the latest real wage numbers we see this.
Between June to August 2011 and June to August 2012, total pay for employees in Great Britain rose by 1.7 per cent.
So we can use yesterday’s inflation numbers to calculate that real wages are falling at a rate of 0.5% per annum if we use the official inflation target measure or at 0.9% if we use the Retail Price Index. As I explained yesterday there are good reasons to expect the annual rate of inflation to pick up in the latter stages of 2012 so it looks likely that not only will real wages continue to fall but that the rate of fall will increase.
If we look at real wages and their fall of around 4% over the credit crunch era we have to consider the question have UK workers priced themselves back into work? If we were to go back to the economic debates of the early part of the last decade this was something akin to a Holy Grail for many. However the phrase “be careful what you wish for” applies here as whilst there are parts which are indeed welcome the fact that much of the improvement is in part-time work makes the situation more complex. As part-time work is often lower paid we also have to ask what is the cause and what is the effect? Some of the fall in real wages may be caused by the switch to part-time work.
Overall if you look at our employment situation it is with the nuances discussed looking quite good in our economic circumstances. To use a phrase from the last decade it looks as though UK companies have followed the German model of “labour hoarding” to some extent.
There is a corollary of falling output and rising employment and the latest evidence on this front is below.
Labour productivity measures the amount of real (inflation adjusted) economic output that is produced by a unit of labour input (in terms of workers, jobs and hours worked). Whole economy output per worker fell by 1.1 per cent between the first and second quarters of 2012
This issue has become a matter of concern and debate and if we look back we do see numbers which are a worry.
UK labour productivity fell by 0.9 per cent in the second quarter of 2012 on an output per hour basis. Market sector productivity fell by 1.5 per cent on this basis, to its lowest level since 2005
We do not want to be reading that we are back to 2005 levels in an era of international competition! Also over the past year we seem to have had cost issues too.
Whole economy unit labour costs increased by 0.3 per cent in the second quarter and were 3.2 per cent higher than a year earlier. Manufacturing unit wage costs increased by 4.0 per cent in the second quarter and were 5.7 per cent higher than a year earlier
Falling productivity and rising costs is a combination which to quote Britney Spears is indeed toxic if true.
However I feel that a lot of this problem comes from how we record the numbers. We have seen increases in part-time work which may be an issue here due to economies of scale. Also we have seen a rise in self-employment which has lower recorded productivity levels. Also in many occupations particularly in services we have the issue of how we measure it. For example fewer customers for a hairdresser,cleaner or osteopath mean lower output but do we fully capture that they may work four days instead of five in response? I am not so sure that our statistics are good enough for that.
There are hints in the latest numbers that productivity is improving a little but is that again simply representing higher output?
You may note that I have left this too last. This is not out of disrespect to the unemployed simply because the other factors are the main driving force here in my opinion. It is improving in terms of both its percentage and its size.
The unemployment rate was 7.9 per cent of the economically active population, down 0.2 on March to May 2012 and down 0.3 on a year earlier. There were 2.53 million unemployed people, down 50,000 on March to May 2012 and on a year earlier.
We should welcome the fall which has taken place in recent times but we should also not forget this which is the increase in the credit crunch era.
the number of unemployed people increased by 883,000
As we break down the UK employment numbers we see that some of the difference between them and our economic growth figures disappears. We should be pleased that we are not seeing falling employment and rising unemployment right now but we also have to realise that as well as some good news there are nuances to this. For example the rise in part-time and indeed self-employed work as well as the fall in real wages we have seen.
Also one of the long running themes of this blog is that economic statistics are by no means as accurate as are claimed. For example I have been self-employed on several occasions and have never been consulted on what or how I was doing. The only information officially received was when I paid my taxes. So as Johnny Nash pointed out some years ago.
There are more questions than answers
And the more I find out the less I know
Yeah, the more I find out the less I know