Five warning signs that the labour market recovery may be slowing
Authors: Charles Levy
20 March 2013
The big economic story of 2012 was that our economy was creating jobs but not growing. Optimists looked at employment growth and confidently predicted that the economy was healing itself. Others have pointed out that without economic growth any labour market recovery will either be short lived, or drive down real wages and living standards across the economy.
Wage restraint, labour hoarding by firms and some complicated growth accounting points are all plausible explanations for the jobs vs. output puzzle, but they don’t help us to understand the true health of the economy. However, today’s numbers suggest the labour market recovery may not be strong enough to drive us out of recession.
Despite some positive headline figures (130,000 new jobs created in the past three months), there are signs that the pace of change is slowing:
1. Job growth has slowed – the headline figure above compares the three months to January with the previous three months. However, if we compare rolling three month periods (i.e. October-December vs. November-January) the figures suggest t our labour market may actually be flat. Though highly volatile and not formally designated as National Statistics, the single month figures present an even more worrying picture.
2 . Unemployment remains persistently high – population growth and individuals entering the labour market mean that jobs growth is having a much more modest impact on unemployment than might have been expected. Close to 600,000 jobs were created in the past twelve months, but unemployment fell by only 135,000.
3. Underemployment is still an issue – two million individuals are in temporary or part-time work because they can’t find permanent or full-time work. This figure has changed little in the past twelve months.
4. Youth unemployment is increasing – the performance of young people in the labour market is often a bellwether of its broader health. Aside from the awful social implications of increasing youth unemployment, this is the sign of a fragile economy.
5. Wage growth is still well below inflation and the gap does not seem to be narrowing – the statistics suggest that those in work are on average one to two per cent worse off than a year ago.
It is easy to read too much into one month’s figures and it is certainly too early to make predictions, but it would be foolhardy to suggest that today’s numbers show a labour market in full recovery. The Chancellor should be reading these numbers as an amber warning and a spur for action to support growth in the economy.
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