Britain’s Jobs Machine Is Still Working

When the unemployment figures come out on Wednesday, expect to hear about it. They will be anticipated, discussed in phone-ins and be the subject of questions in the House of Commons. The Westminster and media villages will go into overtime, as they always do.

Even when the figures are not bad, as last month, they will be reported as gloomy. They are programmed that way. The Office for National Statistics’ February release showed the broader measure of unemployment as 2.67m, fractionally lower than in its January announcement.

Because the figures are announced by the ONS as a rolling three-month total, however, that small fall was reported as a 48,000 rise over the latest three months.

The beauty of the statistics is that there is always some bad news for those looking for it, whether high youth unemployment, the proportion of long-term jobless or the numbers forced to work part-time because not enough full-time jobs are available.

Maybe this is at it should be. We can never have zero unemployment but we should not be satisfied with higher than necessary unemployment. The lowest the Labour Force Survey measure of unemployment got to during the long recovery from the recession of the early 1990s was just under 1.4m in September 2004, after which it rose by 300,000 in the following two years in the absence of recession.

Unemployment is a million or so higher than its recent minimum. Behind that bald statistic is a waste of effort and talent and stories of personal disappointment.

Even when there is good news on jobs, such as 20,000 additional posts at Tesco and 2,000 jobs to be generated by the new Nissan Invitation in Sunderland, there is usually something to balance it.

In the north-east it was at least 300 jobs lost from the closure of the Lynemouth aluminium smelter. Nationally, it was the threat to 1,700 jobs for people with disabilities from shutting Remploy factories.

So we should not be complacent. What we should not do either, however, is overdo the gloom, in a way that does nobody any good. As I have noted before, there was a welcome disconnect in the recession between the drop in gross domestic product and the fall in employment.

GDP fell by more than 7%, employment by 2%, in sharp contrast to previous recessions, where the fall in employment was equal to or greater than the drop in GDP. GDP is still 4% lower than its pre-recession peak, while employment is 1.5% down.

One of the enduring narratives of recent months has been that the private sector is not generating the jobs to offset cuts in the public sector. Fortunately it is not true. Since December 2009 public sector employment has fallen by 365,000 while jobs in the private sector have risen by 630,000.

Though employment weakened at the end of last year, recent evidence, notably from the Recruitment and Employment Confederation survey, carried out with KPMG, is that it is strengthening again.

Two new contributions support my belief there is too much gloom around about the labour market. Goldman Sachs examines claims that headline figures conceal a large rise in “hidden” unemployment, such as the TUC’s recent estimate that true unemployment is 6m.

Statistics for hours worked and labour force participation (whether workers are “discouraged”) do not support the argument that a relatively small rise in recorded unemployment disguised a big increase in hidden unemployment, Kevin Daly and colleagues find. There are always people operating on the fringes of the job market but there is no evidence relationships between their numbers and those for recorded unemployment have changed.

The Goldman report draws comfort from a surprising source: low wage increases. The time to get worried about unemployment is when it is “structural”; it stays high even as the economy recovers. Low wage rises suggest a significant slice of unemployment is “cyclical”: it bears down on wages because people are available and have the skills to start work immediately.

The other contribution was John Philpott, chief economist at the Chartered Institute for Personnel and Development. Philpott, dubbed Dr Doom by The Sun, might not be the obvious person for reassurance.

In a recent speech, however, he provided it. Though the number of people unemployed for a year or more has increased from a quarter to a third of the total, this compares favourablly with the last time unemployment was close to current levels in the 1990s, when the proportion of long-term unemployed was 44%.

Talk of a “lost generation” of young people is misplaced, he said, because “core” (difficult to tackle) youth unemployment is 10%, not the 22% headlined in the official figures. The proportion of unemployed who are young people, just under 40%, is lower than it was, and the percentage of the young who are long-term unemployed, 25%, is in line with past experience.

The common theme is that there is nothing permanent about the higher unemployment we have now. As growth recovers, so employment will strengthen. Unemployment will come down.

Does that not argue for a big, employment-generating public spending boost in the March 21 budget? No. There are things the chancellor could do on infrastructure spending, which he is attempting. There is more that could be done to boost housebuilding, as Vince Cable said in his now notorious leaked letter last week.

But a short-term boost to public spending to generate jobs, in the knowledge that spending has to come down over the medium-term, would be a feeble, make-work plan, however, and ultimately a cruel deception on the unemployed.

It has to be the private sector. If the budget tries anything, it should be to encourage private employers to recruit and expand. There may be tax incentives to assist with that. Not increasing the national minimum wage for young people will help. In the end it has to be about giving firms confidence in the outlook.

Nobody pretends it is easy. Even 600,000 additional private sector jobs over the past couple of years has not been enough to offset the combined impact of public sector job losses and a growing workforce, which includes a rising number of migrant workers. But it can be done. Britain’s private sector job machine is working. It just needs to run a bit faster.

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

This post originally appeared at David Smith’s EconomicsUK and is posted with permission.