UK is underemployed: Should we be surprised?

Business analyst in search of employment Image copyright Reuters
Image caption Many people are resorting to unusual methods in their search for work

Should we be surprised to learn that there are now one million more "underemployed" people in the UK than in 2008?

We know that the economy itself is now operating well below potential. So it makes sense that a lot of people should find themselves working fewer hours than they would like.

Our economy is now around 3% smaller than it was before the start of recession, in the first quarter of 2008. What has puzzled so many people - for so long - is that the number of people in work is now almost exactly what it was then. We are just producing less stuff.

You can see how underemployment could help explain a part of that puzzle, if we were working fewer hours, as a country, but sharing those hours across a larger number of people.

As the chart shows, that is indeed a part of the story: the number of hours worked in the economy has not risen as sharply as employment, which suggests that quite a lot of people are working fewer hours than before - and, it seems, fewer hours than they would like.

Image copyright ons

The rise in self-employment in the past couple of years has been especially striking. Around 45% - nearly half - of the increase in employment since the summer of 2010 has been among the self-employed.

The popular image of a self-employed person is the entrepreneur, starting his or her company at their kitchen table. My colleagues and I have interviewed quite a lot of newly self-employed people over the past year or so that fit this hard-working stereotype. Some of their stories are truly inspirational.

But we have also spoken to some of the people highlighted by today's ONS release, who are counted as self-employed but feel like they are not doing very much work at all.

You might say it's better for them and for the wider economy if they are doing some work - to have some attachment to the labour market - rather than nothing at all.

However, given that this problem of underemployment seems to particularly affect the poorer parts of society, you would clearly not want this to become a permanent feature of our economy. Any more than you would want the UK's productivity - output per head - to keep falling, or our economy to continue operating so far below potential.

That same chart also makes clear that underemployment can only be part of the reason that the number of jobs has grown, while our national output has not.

That is because the total number of hours worked in the UK has also risen sharply in the past few years. At the start of 2008, total weekly hours in the UK stood at around 950 million. That fell to 905 million in the depth of the recession, but it is now almost back to where it was before, at around 945 million.

As the Bank of England pointed out in its recent Inflation Report, even if you assume that the recent increase in self-employment has yet to produce any extra output for the economy, that would still only explain about a tenth of the fall in the UK's productivity over that period.

Today's analysis from the ONS provides a useful snapshot of the uneven way that work has been distributed across our economy over the past few years - and the trouble that is causing many households.

By showing how the problem varies across different occupations, age groups and regions, the ONS has told us a lot of interesting things that we didn't know. But it has also told us something we already knew: the UK's economy is not working nearly as well as we would like.