Sunday, January 27, 2019
The jobs keep coming - but where are they coming from?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

Britain’s labour market continues to both dazzle and puzzle. It dazzles because, as official figures last week showed, we have now have the highest employment level (32.5m) and employment rate (75.8%) on record and the joint lowest unemployment rate, just 4%, since the mid-1970s.

This is good news. Though as discussed here recently a job is no longer a guarantee of a decent standard of living, or even an escape from poverty, it is better than the alternative of not having a job.

In the latest 12 months, 328,000 more people are in work and 68,000 fewer are unemployed. The difference between the two is largely accounted for by the fact that significant numbers of people have come into work out of economic inactivity; not working and not looking for work. The economic inactivity rate, 21%, is the joint lowest since 1971. Employers are struggling to recruit, vacancy levels are high and pay growth is at its strongest for 10 years.

Nobody expected this. Normal economic relationships would have pointed to a slowdown in the labour market alongside the slowdown in economic growth. Normal relationships would also have suggested that, by now, productivity growth would have reasserted itself. Instead, Britain has strong employment but flatlining productivity. When growth is weak but employment strong, simple arithmetic means that output per worker, productivity, will suffer.

That is not the only puzzle. The good news in the figures on employment and unemployment coincides with some gloomy headlines on jobs, whether it is Jaguar Land Rover or Patisserie Valerie. It may not be such a puzzle. It takes time before such announcements feed through to the figures and it is also quite possible for quiet job creation to trump high-profile redundancy announcements. Just as we have moved away from the era of big negotiated pay settlements across the economy, so we are no longer in a world where announcements of job cuts by big employers shape the labour market.

That does not entirely remove the puzzle. Retailing is a sector which, through thick and thin, has tended to generate jobs, even as others were cutting back. According to the British Retail Consortium, however, there were 70,000 fewer people employed in retail at the end of 2018, compared with a year earlier. Those high street woes we keep writing about are real.

So let me, partly as a public service and partly in response to reader demand, try to solve some of these puzzles. The first concerns the short-term. How come, with so much Brexit uncertainty around, were firms so willing to recruit late last year? Employment rose by 141,000 in the September-November period compared with the previous three months.

This puzzle can be answered straightforwardly. Employers last autumn were not so gung-ho. While the number of employees rose by 58,000 in the latest three months, the corresponding figures in 2017 and 2015 were roughly 160,000. 2016, immediately after the referendum, was a special case. Most of the increase in employment during the latest three months, 93,000 out of 141,000, was self-employment. There is nothing wrong with self-employment but it has been unusual recently for its rise to exceed the growth in employees, and could point to some caution among employers.

What about that rise of 328,000 in employment over the latest 12 months? There is something unusual about it in that 262,000 of it, 80%, was accounted for by people aged 50 and over, and nearly 30% was among those aged 65 and over.

There is, of course, nothing wrong with that either but part of the labour market story, and indeed the record employment rate, is the age factor. Women who were entitled to receive the state pension at 60 are now having to wait until 65 or beyond, a change that has happened quickly and which many are upset about. It is one reason – there are plenty of others – why the female employment rate, 71.2% for 16-64 year-olds, has never been higher. The male rate, now 80.3%, was 92.1% in the early 1970s.

Employers have not generally minded the fact that women are staying in jobs for longer, or that age discrimination legislation limits their ability to get rid of oldies at what used to be normal retirement age. But these things have changed the character of employment to some degree.

What about the big one – where have the jobs been coming from? Here it is necessary to switch from one set of official data, the Labour Force Survey, to another, the workforce in employment figures.

These show that, compared with five years ago, most parts of the economy have been creating jobs. So comparing September 2018, the latest figures, with September 2013, there are 135,000 more jobs in manufacturing, 310,000 more in construction, 117,000 in wholesaling and retailing (despite the recent fall), 202,000 in transport, 295,000 in hotels and catering, 292,000 in IT and communication, 286,000 in health and social work, 307,000 in professional, scientific and technical work, 120,000 in arts and culture and a big 376,000 in administrative work.

If you wanted to be optimistic, though not necessarily surprised, it would be about the fact that the IT crowd has got bigger, with a quarter more jobs compared with five years ago. If you wanted to be downbeat, it would be about the fact that there are hundreds and thousands more administrative jobs in Britain.

Where do we go from here? Records are made to be broken, and there is no reason why the current record employment rate has to mark the end of the rise, or that unemployment cannot fall further from its current 4% rate. The past few years have taught us not to bet against Britain’s job market.

It is true that the history of the past 40 years or so tells us that the unemployment rate does not stay as low as 4% for long. From that low-point in the mid-1970s it went all the way up to 12%, and more than 3m unemployed, a few years later. It is currently less than half its post-crisis peak of 8.5%.

And, while low unemployment rates tend not to last, that is because tight labour markets have tended in the past to be inflationary, requiring a response in the form of sharply higher interest rates. When unemployment was 4% in the mid-1970s, pay growth accelerated to more than 25% a year.

The Bank of England is slightly uncomfortable about the fact that earnings growth has accelerated to a 10-year high of 3.4%, alongside continued weak productivity, but the inflationary dangers from this appear to be quite limited.

It is not hard at this juncture to think of reasons why the labour market might catch a cold, and most of them are Brexit-related. But it should not happen as a result of the Bank slamming on the brakes.