Get disconnected – jobs beat economy again

Thu, 24/01/2013 - 20:40 -- nick

UK unemployment has fallen to 2.49 million in the three months to November 2012, down by 37,000 to its lowest level for 18 months, according to the Office for National Statistics (ONS).

90,000 more people were in work than in the previous quarter, and 552,000 more were in work than last year.

We are getting used to trying to explain this trend, even as it confuses us each time the latest figures are announced. It is tempting to try to look for a single compelling argument, but the reality is that only bits-and-pieces explanations can account for this phenomenon.

Some of the factors influencing our doubt on the quality of jobs created have shown a real improvement in the latest numbers. We were concerned by the fact that a high proportion of jobs created were part-time, but in the last quarter the majority were full-time (113,000 of these jobs were filled while part-time work actually shrank by 23,000, suggesting that people were moving from one to the other rather than from unemployment).

This is vital to unemployed people as only full-time work has the potential to provide enough income for the majority of families to live on.

It has been predicted by many economists (don’t laugh) that the UK is likely to have seen its economy shrink over the last three months again, following on from a year in which no growth has been registered. Yet over this time the economy created more than half-a-million jobs, even if 105,000 of them shouldn’t be counted.

The number claiming Jobseeker's Allowance also fell, by 12,100 to 1.56 million, although with many on the Work Programme being counted as employed, particularly those on work experience placements, this may be a categorisation issue rather than a real bounce.

Work Programme participation may also explain the fall in long-term unemployment, with mandatory Work Programme activity counting as employment and likely to account for some of the reported reduction. Those out of work for more than two years fell by 10,000 to 434,000, while the number out of work for more than a year dropped by 5,000 to 892,000.

More encouragement comes from the number of vacancies, which hit 494,000, higher than at any time since 2008.

The ‘Olympics effect’ is no longer a major factor, and we might have expected unemployment to rise as a result. But the ONS showed that London experienced the biggest drop in unemployment of any region, a 26,000 decrease on the previous quarter.

So more in work, better quality jobs, more vacancies and fewer claimants. All good news then?

Well, at the risk of repeating ourselves, a shrinking economy cannot support more jobs forever. Eventually the lack of economic activity will catch up with job creation, and that time can’t be too far away.

Put simply, if the amount of money in the economy doesn’t grow while we have a growing population and more people entering than leaving the job market, unemployment will naturally increase.

The fall in real wages has offset some of this effect – they increased by 1.5% last year while inflation is currently 2.7% - but mean that workers can no longer afford to buy as much, and this lack of spending power is likely to be one reason why growth is low but unemployment hasn’t risen with it.

A spate of High Street shop closures has been blamed on the increasing move to online shopping, but many years of eroding wages must share responsibility here. With chains including Comet, Jessop, Blockbuster and HMV recently closing or entering administration, their employees and those of the 140 retail businesses currently at risk (according to Begbies Traynor) must be looking at the reducing unemployment figures in puzzlement.

These closures are the best evidence that the upturn in employment is about to come to an end. Tracking the thousands of retail job losses gives a clue to its future direction, but the current downturn in construction and manufacturing will only add to the dole queues.

Wage erosion combined with tax credits that are due to rise at a below-inflation rate of 1% from April mean there is a double risk that those in low-paid work will experience poverty, and this may undermine the government’s aim for work to always pay.

Unemployed people need jobs that can support them and their families, and the erosion of salaries’ real buying power, coupled with increasing sanctions for benefit claimants who do not take jobs at low salaries, could force jobseekers to accept work that cannot adequately provide for them.

This may look good in the statistics, but transitioning from poverty-level benefits to in-work poverty does no-one any good, and will continue the pattern of low growth until it is addressed.