Modern business Skyscrapers

A health check on Britain’s jobs market

Last week we took stock of the labour market, with the latest Office for National Statistics (ONS) data showing that the tide may be beginning to turn on Britain's so-called 'jobs miracle'. Unemployment ticked up to 3.9 per cent for June to August (an increase of 0.1 per cent), with the number of people in work falling by 56,000.

Wage growth also slowed, dipping to 3.8 per cent for the three-month period (excluding bonuses). It all amounted to a 'markedly-weaker' jobs report than was anticipated by economists.

Yet despite such sentiment, the fact is that these figures are still highly impressive, not least when compared with various other economic data we've observed in recent times. Although the UK appears set to have avoided a technical recession in Q3, the fact is that growth has been anaemic. Furthermore, consumer confidence remains in the doldrums, as has been the case for the best part of three years.

As such, continuous good-news stories in the jobs market over the last decade have confounded many economists, especially when the uncertainty and gloom surrounding the global economy is added to the mix. The unemployment rate stood at a 16-year high of 8 per cent back in 2010, but over 3 million jobs have been created since, and unemployment is now touching 44-year lows. Wages have also outpaced inflation for 19 consecutive months.

Whatever concerns employers may have about the current economic climate, it doesn't seem to be dissuading them from taking on new staff - and it is the workforce who are benefitting, with greater employment opportunities, and rising wages.

But does this synopsis actually tell the whole truth?

What lies beneath

For all the remarkable employment growth, and the barnstorming run for employee wages, the full story of Britain's jobs machine is rather more nuanced. For starters, despite their recent surge, real wages remain below the levels they were prior to the financial crisis, with the Institute for Fiscal Studies suggesting a 3 per cent deficit in real terms annual earnings compared with those in 2008 (rising to 7.2 per cent for those aged 30 to 39).

And, while pay packets within the private sector have edged up slightly over the past two years, a considerably bigger driver of earnings growth has been the Government's decision to relax public sector salary caps. By all means, a welcome measure, but wage growth is thus more a product of policy intervention than growth or prosperity.

A cross-section of the labour market also takes a bit of shine off the headline statistics. Interestingly, while the number of people in full-time work has increased, it has actually fallen as a share of total employment, with the number of self-employed or flexible workers now rising to nearly 5 million. There is also the controversial 'gig' economy, which, as at the end of June, had doubled in size over the preceding three years. Indeed, one in every 10 adults now partakes in this form of work.

Analysis by the Institute for Employment Studies showed that some 2.5 million professional senior jobs have been created in the last decade, and yet a large proportion of them have been snapped up by over 55s, who, with the retirement age increasing, feel compelled to work for longer. As such, young people are finding opportunities to progress harder to come by.

There is also an imbalance in terms of geography, with recent ONS figures showing that London and the South East accounted for just under 50 per cent of new jobs created between 2008 and 2018. For regions such as Wales and the North East, their share is less than 3 per cent each.

And then there is the vexing issue of productivity. In the decade since 2008, Britain’s collective productivity growth was a mere 2 per cent, which historically would take just a year to rack up. These woes have continued into 2019, with productivity in the second quarter plummeting at its fastest rate for more than five years.

So what should we make of all this?

Many economists draw the conclusion that a robust labour market is not a product of economic success, but rather a lack of willing among employers to invest in the face of uncertainty. It is far cheaper and easier to hire (and fire) workers than it is to make long-term investments in machinery, technology and R&D. 

This would go some way to explaining why wages have endured a lost decade, while employment has soared. Conventional economic wisdom dictates that a tight labour market should strengthen bargaining power on the part of workers, and see a proportionate rise in earnings as a result. Yet this hasn’t happened, with various surveys pointing to a lack of job security as the chief culprit.

All that said, economists and pundits can be guilty of painting a gloomier picture than is justified. Undoubtedly, there are imbalances and imperfections in Britain’s employment distribution. Yet this is true of any economic indicator or dataset. In truth, our jobs market is the envy of many countries – not least in the developed world, where youth unemployment in particular is proving to be major problem. Let us not forget that there are still 813,000 unfilled vacancies in the UK today, so there is no shortage of opportunity either.

We should also be careful to dismiss the growing number of self-employed and gig economy workers. In many cases, it provides the dynamism our businesses need to thrive in a competitive, fast-changing economy. And for the workers themselves, it can offer valuable flexibility, or the capacity to earn a second income.

The growth of the gig economy is also a global trend, most notably in the US. Incidentally, a 2018 survey of freelancers for Upwork Freelancing in America found that 90 per cent of respondents were positive about their futures, and felt that ‘their best days lie ahead of them’. Similar anecdotal evidence in the UK suggests that many within the gig economy consider their working arrangement to be mutually beneficial, and with the recent introduction of additional rights for these workers, the rapid growth of the sector need not be a bad thing.

Ultimately, more people are in work than ever before, and their pay packets are on the up and up. The labour market may be flawed, and there are considerable challenges ahead for our workforce as we deal with economic uncertainty, and the integration of technology and automation. But, relative to almost every other nation on earth, we start this battle from a position of substantial strength. 

Right Hand Navigation - Category Post : 

Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.

As with all investments, your capital is at risk.