From the TUC

Recession report #13: Moving towards a fragile recovery

26 Nov 2009, by in Economic Reports, Economics, Labour market

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.

9 Responses to Recession report #13: Moving towards a fragile recovery

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  3. may
    Nov 28th 2009, 7:38 pm

    Why dont you talk straight on this?

    Your article is as convoluted as the govt and IPPR press releases, which pretend that reduced rates of increase in unemployment represent a drop in umemployment when, instead, they clearly represent a cumulative increase.

    People are not so stupid. And they pay the wages of TUC staff.

  4. Tim Worstall
    Nov 29th 2009, 12:25 pm

    “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.”

    Quite. We all said before the minimum wage came in that it would be the young and un trained who would bear the brunt of the uinemployment effects. It was brought in and the young and untrained are bearing the brunt of the unemployment effects.

    You are surprised why?

  5. Nicola Smith

    Nicola
    Nov 30th 2009, 1:26 pm

    Dear May,

    Thank you for your comment. We are very clear in our recession report that the numbers of people out of work are still rising. However, I think it is also important to recognise that the speed at which unemployment is going up is starting to slow, which gives us hope that levels may start to fall earlier than we initially thought.

    This does not mean that anyone, including the TUC, is or should be complacent about unemployment. Since January 2008 unemployment has risen by 842,000, and both levels and rates of long term unemployment are still rising very quickly.

  6. Nicola Smith

    Nicola
    Nov 30th 2009, 3:48 pm

    Dear Tim,

    Thanks for your comment. Unsurprisingly, I don’t agree with your analysis. Successive research studies (including comprehensive meta-analyses) have shown that minimum wages do not have negative employment effects. In fact in the 80s (when, as you know, the minimum wage did not exist) youth unemployment rates rose far faster than they have this time around. And during this recession youth unemployment is not a problem confined to the UK – unemployment rates for young people are higher than those for adults aged 25+ across Europe and the OECD (and the UK’s youth unemployment rate is lower than the eurozone and the EU27 average).

    The reasons young people are more likely to be affected by recessions include:

    – recruitment freezes have a disproportionate impact on new labour market entrants (who are more likely to be younger workers) who find it harder to find work;
    – young workers are often laid off before older workers, as they are more likely to have less experience, lower skills and to be cheaper to let go (for example being less likely to qualify for statutory redundancy pay as a result of reduced service)
    – young people are more likely to work in sectors that have seen large increases in unemployment and where work is more likely to be temporary (e.g. large parts of the service sector).

    Rising youth unemployment should absolutely continue to be a key policy issue, but, as eminent labour market economists Richard Layard and Paul Gregg have acknowledged, it will be resolved through Government investment in initiatives including the Future Jobs Fund, not through cutting wages.

  7. Tim Worstall
    Nov 30th 2009, 4:00 pm

    My word, that’s fascinating. It’s certainly not what Richard Layard taught me when I was an undergraduate nor is it what his textbook used to say.

    It’s not even what the Low Pay Commission found when it reviewed the effect of the minimum wage legislation.

    Of course raising the price of something above its market clearing rate will lead to there being a surplus of that thing being on offer. It might be small, it might be mild, it might be difficult to detect, but it will be there.

    But that effect will of course be greatest for those items whose price has risen furthest above that market clearing rate. And so with a minimum wage it will be the untrained and inexperienced who see the greatest rise in unemployment.

    You noted it above in your statistics (although resolutely refused to note the cause) and we’ve seen exactly the same happen to the teenage unemployment rate in the US as a result of their recent minimum wage rise.

    We might even think that it’s all worth it, that a few tens of thousands more unemployed is just fine and dandy if millions get better wages. But to deny that demand curves slope downwards and supply ones up is, well, pull the other one, there’s bells on it.

  8. Nicola Smith

    Nicola
    Nov 30th 2009, 5:11 pm

    Dear Tim,

    The LPC’s most recent report states that:

    “Our most recent research found little evidence to suggest that increases in the minimum wage had led to reductions in employment or hours worked.”

    And the proposal that I was referring to (in which Gregg and Layard promote the creation of jobs paid at NMW to tackle long-term youth unemployment) can be downloaded here:

    http://cep.lse.ac.uk/textonly/_new/staff/layard/pdf/001JGProposal-16-03-09.pdf

    Best wishes

    Nicola

  9. Tim Worstall
    Nov 30th 2009, 5:27 pm

    And the LPC’s first report had a survey of businesses whioch detailed how many jobs had been lost and hours cut.

    As I say above, the effect might be small but it just isn’t non-existent.