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Jobs recovery or jobs illusion?

23rd April 2014

Jobs recovery or jobs illusion?

All hail George Osborne? Maybe not, says Andrew Fisher

The figures are impressive - unemployment is down by 320,000 in the last year, and the unemployment rate is now under 7%. Unemployment is a quarter of a million lower than when the coalition government was elected.

The employment rate is 72.6%, nearing the levels reached before the crash (73.0% in 2008), and there are around 1.5 million more people in work than when the coalition government came to office.

And as was much heralded, CPI inflation is 1.6% and the average wage is now increasing at 1.7% a year - and so the six-year living standards squeeze is claimed to be over, apparently blunting Labour’s cost of living crisis campaign ...

But is everything as it seems? To deal with the pay issue first, the data is actually a little more complex. Firstly, while CPI inflation has dropped to 1.6%, RPI inflation is 2.5%. CPI does not include housing costs, and although mortgage rates are low, house prices are rising sharply and in many areas rental costs are too.

And what of pay? Pay including bonuses is rising at 1.7%, but regular pay (excluding bonuses) is only rising by 1.4%, below even the CPI inflation measure.

And the public sector remains largely subject to the 1% pay cap - so those getting a 1% pay rise this year will continue to get worse off (albeit at a slower rate than before). Likewise, most social security benefits are also capped at 1%, and so the squeeze continues for many millions more.

As the research company Capital Economics told Reuters, “Keep the champagne on ice. Real earnings in the UK are still 10% below 2008 peak”. Although, David Blanchflower points out that average pay is down 14% since February 2007.

On employment, the figures have surprised many, but the headline figures do not tell the whole story. Since the coalition was elected, the number of people employed full-time has increased by over 1.1 million, employed part-time by 400,000 and registered as self-employed by around 500,000. Of course some of this rise is accounted for by the increased size of the labour market.

So what is the shape of the economy now? How does it compare? In 2008, just before the crash took hold 64.4% of those in work were employed full-time. That slipped to 62.7% by the time Labour left office in 2010. And under Osborne’s recovery? It has fallen further to 62.1% of the working population.

The figures for part-time employees over the same period are: 21.8%, 22.8% and 22.2% respectively. So although there is a small rise in the proportion of workers in part-time employment since 2008, the fall since 2010 shows that part-time working does not account for the drop in full-time employment.

So where have the workers gone? Look to the self-employed. In 2008, 13.1% of people were working as self-employed. This rose to 13.7% in 2010, but since the coalition was elected has risen sharply to 14.8% - an astonishing rise.

In the last quarter, self employment rose 146,000 in last quarter, while the number of employees was up just 99,000.

Writing in City AM, Allister Heath was effusive about the revolution in the jobs market:
“This is clearly a golden age for entrepreneurship, especially in London, but there is more to it than that. Self-employment surged 17 per cent over the past five years and is still rising ... Self-employment jumped 6.8 per cent year on year in the last three months ... this accounted for over half of the rise in total employment”

So is the rise in self employment due to a surge of dynamic entrepreneurs, inspired by Alan Sugar’s atrocity of a programme and the institutionalised begging to have your creativity exploited that is Dragons’ Den? Perhaps, but the data suggests otherwise. In fact, it suggests these new entrepreneurs are not very successful at all.

Analysis by Richard Murphy shows that in the last decade the average income of the self-employed (excluding consultants earning over £100,000 a year) has dropped from £15,000 a year to a little over £10,000.

The median self-employed income in the UK today is just £9,724 a year - significantly less than working full-time on the minimum wage (£12,304).

It is no wonder that even among the self-employed themselves there is little entrepreneurial zeal to be found. Research by the Resolution Foundation shows that 28 per cent of people declaring themselves self-employed over the last five years would prefer to be employees. Separate research by the TUC finds that the UK’s rising self-employment is being driven by people working for themselves, rather than starting job-creating businesses.

And this brings us back to pay. The ONS data that reports pay is rising at 1.4% (1.7% including bonuses) does not include the pay of the self-employed. HMRC publishes this separately once a year, and as Murphy points out their pay is shrinking fast. So with nearly 15% of workers self-employed with a trend of absolute declining incomes, it seems likely the pay squeeze is even further from being over.

But it’s not just on self-employment where we need to exercise caution, there are 586,000 people (50,000 more than in 2010) who are working in temp jobs who want permanent jobs, and 1.4 million people (350,000 more than in 2010) who are working part-time but want full-time work. These figures show the jobs market remains fragile.

To emphasise the point that jobs are also about quality not just quantity, the figures also show that ther has been a 21% rise in jobs in “real estate activities”, but a 9% decrease in staff working in the state education system: fewer teachers, more estate agents?

Finally, to say unemployment is under 7% may also be stretching the facts, despite the ONS assuring us that unemployment is now 6.9%. In addition to the unemployed, there are 135,000 people classified as on government supported training and employment schemes (i.e. workfare in many cases). This would put real unemployment rate at 7.3%.

So the squeeze on living standards continues. And that means we are likely to see food bank use continue to rise. In fact if you want to know if the cost of living crisis is over you’d be better off checking the queue at your local food bank than reading the newspapers or listening to government ministers.

For the Labour Economic Advisory Panel, click here