No end to the ‘squeeze’ in sight
This week’s labour market statistics brought some welcome news – unemployment (on the broad ILO measure) fell by some 35,000 with the rate dropping from 8.4% to 8.3%, whilst employment rose by 53,000. But a look at the detail behind the headlines provides cause for caution. Whilst there is evidence of stabilisation in the labour market, there are also worrying signs that the ‘recovery’ is being driven by part-time and precarious work whilst real wages continue to fall.
The number of people in full-time work actually fell in the most recent period.
As the graph makes clear, if we are measuring the strength of the labour market by its ability to generate full-time work then there are few signs of recovery. Instead what we have is a picture of stagnation.
The entire net growth in employment can be explained by an increase the number of people working part-time jobs who say they want a full-time role. There are now 1.4 million in this position, in addition there are another 627,000 people working on temporary contracts who want, but cannot secure, a permanent contract. That adds up to over 2 million people currently ‘under-employed’ in the UK in addition to the 2.6mn actually unemployed.
If the labour market was truly recovering we would expect to see upward pressure on wages, all things being equal and increased demand for labour should drive up its price. There are no signs of this happening. Average pay growth actually fell in February to just 1.1% – a level well below inflation.
As the graph below makes clear, the recent falls in inflation are not feeding through into higher real incomes. Pay growth remains well below inflation and real incomes are still being squeezed.
The worry is that policy-makers will prefer to concentrate on the headline figures rather than taking stock of what is actually happening in the detail. A recovery based on part-time work, precarious employment and falling incomes is not a cause for celebration.
The debate around the labour market is mirrored in the wider debate around growth. Expectations are now so low that any growth is now seen as a success. Avoiding a technical double dip recession would obviously be welcome news – as is the rise in employment. But just as a rise in employment that isn’t accompanied by the creation of well paying, full-time positions shouldn’t be celebrated nor should we celebrate what looks set to remain very weak growth.
2011 was a terrible year for the British economy – the domestic economy actually contracted, unemployment rose and real incomes fell. Although we weren’t in a technical recession it certainly felt like we were to many people. 2012, according to the OBR forecasts, looks set to be similar – a squeeze on living standards, weak growth and a lack of decent work.
The fall in unemployment is obviously to be welcomed but until ‘under-employment’ stops rising and real income start to rise we can’t say we have truly become to ‘recover’.
Duncan Weldon is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.