Recession report #13: Moving towards a fragile recovery
Today we publish our 13th recession report, which considers the latest ONS labour market release. There is definitely some good news, with the overall figures showing either a pause in recent employment falls or the possible start of a recovery in employment levels.
However, there are several factors which show just how fragile the labour market still is. In particular, between the June – August and July – September quarters there was an increase of 34,000 in employment for those over-25, but a fall of 42,000 for young people aged 16-24. Young people’s employment levels are showing no evidence of improvement. In addition, although unemployment of less than six months stopped rising in the Spring, long-term unemployment is still increasing and the increase does not yet show any signs of easing off.
Another sign of weakness is the large number of people who are working in part-time or temporary jobs even though their preference would be for full-time or permanent work. The number of temporary workers and the proportion of workers who are temporary have both been rising over the past 12 months. And there has been a long-term trend for the number of part-time workers and the proportion of workers who are part-time to increase; neither trend has shown any sign of abating during the recession.
But a key point to notice about all these data is that, except for a blip in the figure including bonuses earlier this year, Average Earnings Index changes have been steadily positive. There have been freezes and even some cuts, but changes overall have been positive – sometimes quite strongly so when negative inflation is taken into account. The talk about widespread pay cuts has been proven false in 2009.
In the second part of the report we consider how other countries in the Euro area and across the OECD have fared during the global downturn. We find that while the UK employment rate (69.6% in Q2 2009) remained higher than many other European countries, the UK’s annual employment rate change is slightly above the EU average (a drop of 2 percentage points on the year compared to an EU average fall of 1.9 percentage points). The UK’s drop in GDP has also been greater than the EU and eurozone averages.
Across the EU one of the reasons that falls in employment have been less than contractions in economic activity is the ability of employers to reduce the volume of hours their staff work and to increase the use of part-time employment. Recent analysis from Eurostat shows that this has been the case in the EU27 and in the euro area between the second quarters of 2008 and 2009.
We also consider Government responses to the downturn, and among other conclusions find that two-thirds of OECD countries have reported setting up new short-time working measures. We also note that the UK’s spending on active labour market programmes remains well below the OECD average, although since the start of the downturn the UK has seen some significant increases in spending on such measures. All OECD countries have introduced some degree of stimulus, with the largest packages in the USA, Japan, Korea and Australia. However, the data show that as a proportion of GDP, the UK package is relatively small.