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Dr Neil Lee

The labour market in 2012

Authors: Dr Neil Lee Dr Neil Lee

12 December 2012

On the face of it, the labour market has been performing well. Gross Domestic Product (GDP) is now four percent lower than at the start of 2008. But despite this massive economic shock, there are actually more people in employment now than when the crisis began. On the face of it, it looks like the labour market has done well in 2012. Yet dig beneath the employment figures, and the labour market in 2013 faces some tough challenges.

The increase in employment hides some troubling trends which look likely to continue into 2013. First, many of the new jobs aren’t full time, with full time employment actually decreasing by 706,000 since 2008. Instead, we’ve seen growth in part-time employees (around 310,000) many of whom are seeking full-time work. The TUC estimate that 1.4 million people are now ‘underemployed’ – in employment, but wanting to work more hours. Self-employment has also increased by almost 400,000. Many who choose self-employment are happy to do so, however, for many others it may mean eking out a living while unable to find full time work.

Second, youth unemployment – in particular long-term youth unemployment – remains one of the most important societal problems facing the UK. Youth unemployment is important as it can have ‘scarring effects’ - the longer young people are out of work, the lower their wages can be – an effect which lasts until middle age. The government has attempted to address this through the youth contract, and charities and business have also been working hard. Youth unemployment fell in the 12 months to October.

The challenge will be to sustain the reduction in youth unemployment, and integrate the really hard to reach into work The most recent figures suggest more than 100,000 18-24 year olds have been out of work for two years or more – a figure which is little changed from a year earlier. Getting this group into the labour market will be important, but a difficult task.

Third, wage growth is weak. Average earnings growth is at 1.8%, but with inflation running far higher, incomes are squeezed. This follows a long-period where median wages were flat, despite growth in the national economy. And Office of Budget Responsibility predictions – for what they are worth - suggest weak wage growth for a number of years.

The labour market has been good at getting people in work. But scrape beneath the surface, and 2012 has been a tough year for working Britain – people want to work more hours, wages are depressed and certain groups are being particularly badly hit. With the potential of a triple dip repression and continued subdued growth, there are few signs 2013 will be much better. Without a step-change in economic performance, for many workers 2013 is not looking like a happy New Year.