From the TUC

What’s happening to employment?

05 May 2016, by in Labour market

Yesterday’s monthly Economic Review from the Office for National Statistics presented the latest labour market figures and provided an opportunity to look over the medium term at what is happening in the world of work and the signs that the jobs recovery is slowing down. Let’s start with the background to all this.

Change in GDP

GDP growth v1

This chart shows the difference between the level of GDP in a quarter and the same quarter in the previous year. We can see the very large fall in output when the recession hit, the recovery that was well-established by the start of 2010, the falling-off that I’d attribute to austerity, the second recovery as central government eased some aspects of austerity and a weakening that set in about a year ago. As Geoff noted on Budget day, official predictions of future GDP growth have been marked down: previously 2016 growth was expected to be 2.4 per cent, now it’s 2.0.

It looks to me as though faltering output may now be feeding through to employment. I ought to start, however, by emphasising that I’m not just talking about the latest labour market statistics.  Yes, compared with the previous quarter unemployment rose 21,000, and, compared with the previous month employment fell 9,000. But it’s very important for trades unionists not to over-sell the importance of small changes in the Labour Force Survey. Although large compared with many other surveys (reaching about 60,000 people) it is small relative to a labour market of 33 million. For instance, unemployment rose 21,000 on the quarter but the 95 per cent confidence interval (a commonly used measure of statistical accuracy) for this figure was plus or minus 78,000. That is, 19 times out of 20, the change would be somewhere between a fall of 57,000 and an increase of 99,000. Changes on the year, which tend to be more reliable, still show unemployment falling (142,000) and employment rising (360,000).

The evidence on the tendency of recent months, which show the improvements in employment and unemployment slowing is stronger, and there are good reasons for concern. The chart below shows, for each month, the change in unemployment and employment levels compared with twelve months previously.

Change in employment and unemployment levels

Empl levels v1

This looks very like what we would expect if we were witnessing the slowing down of a cyclical labour market recovery, but it is important to emphasise that we are still seeing some very good figures. If we look for instance at job vacancies, the increases have come to a halt, but this figure is still at a very high level (this figure had only been over 700,000 once before Sept – Nov 2014):

Job vacancies (000s)

Job vacancies v3

Moving on to the figures for actual weekly hours worked, which are less influenced by changes in the mix of part-time and full-time work, the picture is less clear-cut. Again, the chart shows, for each month, changes compared with twelve months previously:

Changes in actual weekly hours worked from twelve months previously (millions of hours)

Hours v1 (2)

The picture again is of a jobs market that is improving but slowing down. If we look at different age groups, the most significant change in employment rates is for 16 – 17 year olds, up 0.7 percentage points on the quarter, 4.2 per cent higher than two years ago. (This analysis uses rates rather than levels because the changing numbers in each age group mean that a comparison of changing employment levels can be misleading.)

Employment rates by age group, 2014 – 2016

Ages v1

The key lesson from this chart is how little change there has been recently. Overall, employment rates have risen 1.7 points, but the relative position of different age groups has not changed a great deal. If we extended this chart back 30 years, we would see the halving of 16 – 17 employment rates and a substantial fall for 18 – 24 year olds (largely due to the expansion of further and higher education) but, as this chart shows, this trend has stopped or paused. In the early stage of the current labour market recovery the TUC commented on the rising employment rate for over–65s; there are still changes for this age group, such as in self-employment, but in the past two years the overall employment rate for this age group has been very steady, never below 10.0 per cent or over 10.7 per cent.

In the early stage of the labour market recovery self-employment accounted for a very large share of the jobs being created. Some time ago, the TUC noted that this had ceased to be the case, and it is true that, while 14.8 per cent of all people in employment are self-employed, the increase in self-employment is only equivalent to 12.9 per cent of the overall increase in employment over the past two years. But we did expect that self-employment as a share of total employment would fall significantly as the recovery became better established. This has not happened:

Self-employment as a share of total employment (%)

SE1 v1

Indeed, if we look at these figures in more detail, we can see that self-employment did decline as a share of the total until last spring, but has since risen again (though bear in mind the fact that the numbers are quite small, the recent increase in self-employment is 130,000):

Self-employment as a share of total employment (%, abbreviated vertical axis)

SE2 v1

The early stages of the recovery were also marked by reliance on temporary and part-time work, and it should be said that the share of workers in temporary and part-time employment has not risen in recent months, though it has not fallen by much either. Over the past two years, the share of workers in part-time jobs has fallen from 27.1 per cent to 26.8 per cent and the proportion in temporary jobs from 6.3 to 6.2 per cent. There has also been an increase in the share of self-employed workers who work part-time over the last two years, from 28.0 to 29.2 per cent., though this is a trend that has been established over a long time. Another approach to this issue is to look, not at whether workers are classified as ‘part-time’, but at the proportion of employees who work 30 hours a week or fewer. Here I have used a longer timescale, to emphasise the link to the economic cycle:

Proportion of employees working 30 hours a week or fewer (%)

30 v1

We can see this figure rising during the recession, coming down in 2010 in response to the recovery that began in 2009, rising again as austerity took hold, coming down more significantly in the most recent recovery. Since late 2014, however, it has been stable at best, perhaps rising a little. If we turn to the Office for National Statistics’ experimental claimant count series, which takes into account the (slowly) growing number of out-of-work recipients of Universal Credit, we see signs of the recovery slowing a year ago:

Claimant count rate

Claimants v1

All in all, it looks as though employment and unemployment are continuing to improve, but the labour market is slowing down. With forecasts that output improvements will be smaller than once expected, I don’t see any sign of that changing.