Is labour market coming back to earth?
- 12 October 2011
- From the section Business
"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.