Unemployment: counting what counts

The impact of recovery is being felt very unevenly. In some northern cities, there’s no pick up at all

The recovery is beginning to assume a reassuring air of permanence. When the IMF ups its growth forecast for the year to 2.4% and within 24 hours figures are published showing that the number of people looking for work has fallen to 7.1%, on the back of the sharpest rise in employment ever seen, even the most sceptical start to believe that the worst of it is over. It is particularly heartening that on every measure, the jobless figures look better. Not only is the number in work at the highest level ever, partly explained by the rise in working-age population, but long-term and youth unemployment are both falling and the new jobs are mainly full-time. All this has happened so much faster than almost anyone predicted that some commentators are starting to mutter about a touch on the brakes and the Bank of England has had to signal that an interest rate rise won’t be triggered automatically when unemployment falls to 7%.

Many of the signs of an economy moving smartly into an upswing, then. Inflation is on target at 2%, house prices are booming, consumer spending is rising, business confidence is growing. But no one, not even George Osborne, is behaving as if the problem’s solved. There is a simple political explanation for that. The next election is likely to be a hard sell about economic competence in times that are still uncertain and demand further hefty cuts in public spending.

But there is a much more fundamental economic explanation. The impact of recovery is being felt very unevenly. As a TUC report on Monday showed, London is taking the lion’s share of growth in the national income, well ahead even of the south-east and far outstripping the rest of the country. In two regions, the north-east and the south-west, unemployment actually rose. In nearly half the country, the unemployment rate is still over 8%. Even the rise in house prices is uneven. In some northern cities, there’s no pick up at all.

Most perplexing is what is happening to pay and productivity. Output, along with real wages by most measures, is stagnant. (When the prime minister insists people are better off, as he did in the Commons today , he refers to the impact of tax cuts on disposable income.) One reason for persistent low pay is that that is where four-fifths of new jobs are. Another is that people are taking jobs below their skill level. This is particularly true of new graduates. And another is that it is middle-grade jobs in construction, for example, and retail banking that have disappeared, some of them for good.

Optimists believe this is a cyclical effect and pay and productivity will recover over time. But this has been a slump, the deepest recession for a hundred years. As both the sharply improving unemployment figures and the long overdue improvement in growth have shown, the shape of the recovery is so uncertain that it seems the only thing that can be expected is the unexpected. The surge in wages and buying power that was part of the bounceback after the recessions of the early 1980s and again in the early 90s does not look likely to be a feature of this recovery. Mr Osborne’s conversion to a real increase in the minimum wage last week may have been timed to divert attention from Ed Miliband’s speech on banking. But it was a shift that, in the face of the prolonged experience of low pay, it would have been foolish not to make soon.

The real anxiety is that while Britain’s flexible labour market, so much more flexible than most of our European competitors, is good at creating jobs, it is much less successful at incentivising the kind of high-skilled, high-pay work that would lead to high productivity. The relationship between a low-wage economy and low productivity is much contested, but a year or two back, few would have expected to see record levels of employment at the same time as output remained stubbornly below 2008 levels. But – as Mark Carney now knows – employment statistics on their own can no longer be taken as a sufficient indicator of a return to prosperity.

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