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Jobs and the Recovery: Some detail amidst the doom

Authors: The Work Foundation Stephen Overell

01 March 2011

The market for doom is a never-sated beast: Contemporary jobs commentary now teeters of the brink of suggesting the recovery could actually be worse for employment than the recession.


An appropriate moment, then, for some measured myth-busting at a Work Foundation event on the state of the labour market held in tandem with the launch of a new book, The Labour Market in Winter by two of the UK’s top labour economists, Jonathan Wadsworth and Paul Gregg.


Why did the collapse in output between 2008-10 not deliver a comparable collapse in employment, as previous recessions would have led us to expect?


Prof Wadsworth’s answer is that firms entered the recession with high profits which provided them with some ability to hang on to labour as the recession took hold. Furthermore, although wages were squeezed, people felt richer because of low interest rates and VAT cuts than they would have done on the strength of their wages alone. The New Deals also helped maintain flows out of unemployment. The downside of this approach is that productivity has fallen. This could mean many firms are only just about clinging on to their staff in the hope that orders pick up soon. And he also highlighted the fact that, given the prominence of the public sector in generating jobs both before and during the recession, the worries about private sector job growth were significant.


Different sectors experienced different recessions. Manufacturing and construction fared much more poorly than services in general and public services in particular even grew during the six quarters of the recession.


Still, the experience of the UK is by no means the norm. Countries such as the US, Spain and Ireland experienced things the other way round – a steeper fall in employment than in GDP.


What of the 'lost generation' talk? Prof Wadsworth argues that although serious the youth unemployment problem needs to be put in perspective. The youth unemployment rate may be higher now than in the previous two recessions, but as a percentage of unemployment, young people are not faring worse and the NEET rate (not in education, employment or training) is below the 1990s peak. Furthermore, large student numbers can skew the debate, temporarily exaggerating the extent of youth unemployment as graduates look for work when a degree ultimately greatly helps people get good jobs. Outflow rates from unemployment for young people are still higher than in previous recessions and higher too compared to other age groups.


The labour force, he contends, is increasingly feminised. Men are suffering both from rising inactivity and worsening job stability as traditional type jobs in manufacturing disappear. 'We are right to worry about insecurity,' he notes.  


Ultimately, the nuances and interactions of different parts of the labour force are infinitely more subtle than is sometimes allowed, he says. As JK Galbraith observed in The Great Crash, 'A good knowledge of what happened remains the best safeguard against recurrence.'



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