Earlier this week, Mark Carney, Governor of the Bank of England, addressed the Treasury Select Committee to give evidence in connection with the Bank's latest Quarterly Inflation Report. This report was published following a spate of economic good news stories - yet it remained downbeat. The unemployment rate had fallen dramatically towards the 7% threshold that had been identified as the rate at which the Bank might consider tightening its monetary policy, but there remains evidence of continued fragility in the labour market.
At the Select Committee, Dr Carney suggested that the equilibrium unemployment rate might now be around 6%, somewhat lower than he had thought a few months earlier. With the actual unemployment rate now at 7.2%, that implies some slack. He added: 'We also have a degree of underemployment - people who want to work full-time who are working on an involuntary basis part-time - one of the highest levels on record'.
This issue of underemployment is a key feature of the labour market after the Great Recession. Large numbers of workers are working shorter hours than they would like to work, while some others are not working as much as they want. There is a clear misallocation of workers to work. And on balance, that misallocation is very much in the direction of people being unable to access all the work that they would like.
For workers and their families, this situation merely serves to aggravate the difficulties that come from stagnant wages. Real wages have fallen, and, while people seek to work longer hours to make up the shortfall, they find that they are not being offered as many hours as they are willing to supply. This is a double-whammy.
Data on underemployment are collated by David Bell and David Blanchflower from the quarterly Labour Force Survey. They publish these data on their website, and are now partnering with us to release the data on The Work Foundation's website on a regular basis, with commentary from staff at The Work Foundation. The main Bell-Blanchflower index for quarter 3 of 2013 stands at 9.4%, well above the rate of unemployment of 7.6%. The net value of hours that people want to, but cannot, work is tantamount to adding almost 2 percentage points onto the rate of unemployment.
Just to be clear - this is not an ordinary situation. Before the Great Recession, there was a pretty close balance between the number of extra hours that underemployed people wanted to work and the number of excess hours that overemployed people wanted to shed. That is no longer the case. There is now a gap of around 17.5 million hours per week between the two.
That represents a huge amount of underutilised labour. It also explains, in part, Mark Carney's caution about using the simple unemployment rate as a measure of labour market slack or tightness. The economy may be healing, but there is still a long way to go. Moreover the path that the labour market is taking as it heals is one that has different implications for different groups of workers - some of them pretty uncomfortable. Dr Carney has recognised the importance of underemployment for macroeconomic policy, but it also has microeconomic importance. This calls on policy-makers to consider the new challenges that are posed by the misallocation of hours and the adverse impact that has on many workers' lives.
The Bell-Blanchflower underemployment data, sourced from bellblanchflowerunderemployment.com , appears below:
This is the first in a series of monthly reports from the new director of The Work Foundation, Professor Geraint Johnes about issues which are pertinent to the world of work.
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