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Britain’s ‘jobs miracle’ is not as perfect as Boris Johnson wants to believe
Our understanding of the labour market is already murky, so a misdiagnosis could have disastrous consequences for the economy
I don’t know if there is anyone left in the country who will be shocked by this but it appears that Boris Johnson and his ministers have been guilty of a little “terminological inexactitude” in their claims about the state of the UK job market.
The Government regularly says that there are 420,000 more people in work now than at the start of the pandemic. That’s not true. In fact, there are about 600,000 fewer.
Here’s how the sleight of hand works. The figure the Prime Minister has quoted on numerous occasions is for the number of workers on employee payrolls, which has indeed gone up.
But, not for the first time, the Government is ignoring the self-employed. Look at the total number of people in employment produced by the Office for National Statistics and you’ll find it’s some way below where it was when the pandemic hit.
Cherry-picking economic statistics is never ideal, although I suppose it is par for the course these days.
Nevertheless it’s particularly important to call it out in this case because our understanding of what’s going on in the labour market is already pretty murky and a misdiagnosis could have disastrous consequences for the economy.
As everybody/most people/some of us (delete as appropriate) start returning to their offices following the end of the Government’s work-from-home guidance, the endless debates about the future of work can move beyond the realm of the purely theoretical.
The requirement for mandatory face coverings in public places and Covid passports will both be dropped from next Thursday. This will be a huge boost to some companies.
Life is returning to normal and restrictions will, fingers crossed, soon be just a bad memory. As confidence returns we will also start being able to unravel some of the mysteries of the job market.
At the moment it is sending highly confusing and conflicting signals. Data released earlier this week showed that employment fell to 4.1pc in December, which is roughly the same level as at the start of the pandemic.
The much feared wave of redundancies when furlough ended in September has thankfully not come to pass. However, the proportion of people of working age who are in employment has also fallen since the start of 2020.
What’s more, the figure for hours worked is still a full 3pc below where it was two years ago – does this mean that there now are more less-good jobs?
Finally, vacancies are at record highs and yet wage growth is, as we also saw this week, failing to keep pace with inflation.
This means that the average worker is suffering a real-terms pay squeeze. If the job market is so tight and companies are desperate for staff, why haven’t workers been able to demand bigger raises?
The Government deserves credit for policies like furlough that helped keep much of the economy in a form of cryogenic sleep during the lockdowns.
There were genuine concerns as Covid first spread around the world that a cessation of economic activity could lead to mass redundancies and a potential rerun of the Great Depression. This was avoided.
But the truth is that the jobs markets in most Western economies have remained similarly hardy throughout the pandemic regardless of the approaches adopted by various governments.
The question is what happens now. Central banks will be particularly alert as it will influence how robust they can be in trying to tame inflation. If the jobs market is solid, they can afford to be more strident; if there are still weaknesses, policymakers will have to tread more cautiously.
It’s clear the standard labour market definitions are becoming less useful as the nature of work changes. The unemployed are counted as those who are out of work, looking for a job and can start within the next two weeks. On the flipside, you only need to be working for a couple of hours a week to count as employed, even if that means you’re not earning enough to live on.
In 2017, the European Central Bank created a third term. “Labour underutilisation” encompasses those who were unemployed and weren’t for whatever reason searching for a job. The ECB found that labour underutilisation in the eurozone was twice as high as unemployment.
British statisticians class people as “economically inactive”.
Sure enough, this has risen sharply over the past two years and economists are still arguing over why.
It could be that some people reassessed their life choices during the pandemic. That appears to be what’s happened in the US where unemployment is also low but roughly four million workers have dropped out of the economy.
Economic inactivity in the UK has increased most among those aged 50 to 64.
Some older workers have chosen to sit out the pandemic rather than work in jobs that would require them to work in close proximity with people and increase their risk of catching Covid. Some of these people may now return to the workforce but others appear to have retired early, possibly for health reasons.
The idea that the pandemic would, as the Black Death had, result in a shift in the balance of power from capital to labour appears to be incorrect.
Yes, there have been severe labour shortages in some specific areas, such as truck driving, farm work and hospitality, however, the fact that average wage growth is currently failing to keep pace with inflation suggests that workers in most jobs do not have the whip hand when it comes to pay negotiations.
It remains to be seen whether a prolonged period without Covid restrictions will result in a further tightening of the jobs market.
Central banks tasked with helping to put a lid on inflation will be hoping not. The worst case scenario for them is a wage-price spiral – where workers demand higher pay in the expectation of future rises in the cost of living, resulting in companies having to put up their prices.
We may be arriving at the new normal but we still can’t be sure what it looks like.
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