Is labour market coming back to earth?

 

"Escape velocity" is a phrase we usually associate with astronauts, not economists. But I've heard it more and more, in this recovery, talking to senior economic policy makers. The recovery has taken so long to reach a point where continued movement is no longer in doubt.

A rough definition of escape velocity (physicists, please avert your eyes) is the speed at which a body is able to break free of the gravitational forces pulling it down, so its movement becomes self-perpetuating.

Two years since the formal start of the recovery, our economy does not seem to have managed that yet. And nor has the UK labour market. In fact, to judge by today's figures, the forces acting to pull employment back to earth are starting to win out.

For some time, we were able to say that employment growth in the private sector was outweighing the loss of jobs in the public sector. That is no longer true. The public sector lost 111,000 over the three months to June (97,000 excluding temporary jobs for the census), while the number of jobs in the private sector rose by 41,000.

The claimant count is 129,200 higher than it was a year ago, and it is not far from its recession peak. Meanwhile, total employment over the three months to August was 47,000 lower than in same three months of 2010.

Intriguingly, losses in part-time employment are driving the loss of jobs, just as they drove the increase in employment in the first year of the recovery. Part-time employment has fallen by 175,000, with full-time falling by just 2,000 over the three months to August.

It would be good to know what was driving these two very different outcomes. It might help us understand whether this is the start of a new downward trend for employment, or something more temporary.

The only small grain of solace that can be taken from these figures - and it is a tiny one - is that earnings continue to lag far behind inflation. Average earnings (excluding bonuses) are just 1.8% higher than a year ago.

On the basis of these numbers, the Bank of England needn't worry that another bout of QE will stoke domestic inflation. But I'm not sure the MPC was very worried about that before. And if you are a retailer, the relentless fall in real household incomes will not sound like good news at all.

 
Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

So it's goodbye from me

After 11 years at the BBC, I'm leaving for a new role in the City.

Read full article

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 313.

    Before spouting out garbage, I wish people would learn about things like comparative advantage and average of imports\exports as a share of GDP.

    Compared to Netherlands and Germany, the UK is a rather closed economy.

  • rate this
    0

    Comment number 312.

    re #309 Inflation was high even before 2007 - we thought 2.something was low but it wasn't, it was way too high.

    Present inflation is being driven by oil+commodities+currency+raw food+taxation. In the case of transport taxes, these have effect both on raw+processed food incrsg cost & on tax like Council Tax & Bus Rates. Had Govt not frozen former - we would have been seeing big increase in Jan.

  • rate this
    0

    Comment number 311.

    310 rpwd same deal only worse. It will not hold together unless the boys in the city are curbed and there is a national bank to replace it all.

  • rate this
    0

    Comment number 310.

    In late 20th century the economy was stagnant and there was large inflation. A term was invented to describe this which was stagflation. I'd suggest it's now worse and we may be experiencing recessflation. The solution for stagflation was Thatcherism which led to 3 million unemployed. What on earth do we have to go through now?

  • rate this
    0

    Comment number 309.

    "earnings continue to lag far behind inflation. Average earnings (excluding bonuses) are just 1.8% higher than a year ago."

    One of the basics of my macroeconomics course long ago was the inverse 'short-term' relationship between inflation and unemployment.

    We have an 'interesting' situation here of high unemployment and high inflation. What'S driving this high inflation? Then, we add more QE.

 

Comments 5 of 313

 

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.