WIREDGOV

Blog posted by: Jacob Mohun, (January 23, 2014)

At long last we see some positives in the latest UK labour market figures. Unemployment is down, youth unemployment is down and even inflation, albeit only very recently, has begun to come down, therefore easing very slightly the continuous decline in real wages and crisis of living standards.

But as we have said countless times, the devil is in the detail and it would be foolish to be too euphoric about the headline figures alone without acknowledgement of the wider context. There remain serious concerns as to whether the labour market recovery is sustainable and whether it is benefiting everyone.

Leaving aside these issues for a moment, the short-term news is positive. The period September to November 2013, compared to the three months that preceded it, saw unemployment fall by 167,000; youth unemployment fall by 39,000; and 280,000 more people in employment, roughly 80% of that full-time. The unemployment and youth unemployment rates have fallen by 0.5% and 0.1% respectively, now at 7.1% and 20%. All these figures point to the undeniable fact that the labour market has picked up some strength. More people are now finding work than have been able to in the recent past.

This period also saw total pay and regular pay for employees increase by 0.9% against a yearly inflation rate of 2.1%. That means that although pay growth is unchanged, the fall in CPI inflation since the last release, from 2.2% to 2.1%, means real wage growth has fared slightly less badly than it has before.

More welcome news came from an unlikely source this month, as Chancellor George Osborne signalled that he will allow the national minimum wage (NMW) to rise faster than inflation next October - undoubtedly a good thing and will help stop those on the lowest pay from being continually left behind by the rest. Political posturing or not, it will force Labour to promise the same going into the 2015 election.  The Low Pay Commission estimates that 3.7 per cent of jobs were paid at or below the minimum wage in April 2011 and despite this affecting only a few people it helps those most in need of a pay increase. 

All that said we must distinguish between the short and long term. In the short term this welcome news on the labour market and NMW will bring real and tangible benefits to people’s lives today. But looking to the longer term, underlying problems in the UK labour market remain. Real wages are still in decline and other concerns regarding the sustainability of a recovery based on consumer debt and poor economy-wide business investment loom large on the horizon – these will no doubt come to rear their heads with ominous effects for the economy and the labour market, if not dealt with sooner.

To address these long term challenges an attempt to rebalance the economy, as the Coalition promised, would need to be made. The government could, for example, inject a large fiscal stimulus into green energy industries, making the area a more attractive and safer bet for business investment. Such a move could, in the short term, create jobs in parts of the country where employment growth remains particularly poor. In the longer term it would have the potential to stimulate business investment in an industry that would be able to improve the UK’s poor trade balance through exports, and reduce people’s energy bills.

This strategy is ambitious and not without risks, but the current path of an economy base on a housing boom (or bubble) and consumer debt seems, despite the recent positive employment figures, to carry much larger risks into the future.