Employment highs are obscuring a great malaise
The latest quarterly job market figures were released this week. The numbers are moving in the right direction.
Northern Ireland’s unemployment rate dropped by 0.6 percentage points (pp) over the July to September quarter, leading to a 1.3pp drop over the past year, and the current figure is 2.5% - a record low.
This unemployment rate is lower than the latest equivalent figures for the UK (3.8%), the Republic of Ireland (5.3%) and the European Union (6.2%).
Yesterday’s update from the Department for the Economy also revealed the employment rate is now 72.3%, having increased over the quarter by 0.1pp and over the year by 2.8pp.
Although the economic inactivity rate increased over the quarter by 0.4pp, and remains the highest in the UK, it decreased over the year by 1.9pp to the current rate of 25.8%.
In its commentary on the figures, DfE said: “These trends are similar to those in the UK, where unemployment is at a joint record low (3.8%), employment is at one of its highest points (76.0%) and economic inactivity is at one of the lowest rates on record (20.8%)…
“The significant falls in unemployment and increases in employment were coupled with moderate increases in wages. Median gross weekly earnings increased over the year to April 2019 in nominal (3.3%) and real terms (1.2%) to £535. The increases were larger than the UK average (2.9% and 0.9% respectively) although NI median weekly wages were the second lowest of all the UK regions.”
This all sound great. However, is something else going on?
In his latest Ulster Economix bulletin, Ulster Bank chief economist Richard Ramsey said the NI economy may have “turned” – and not for the better.
He warned of “marked deterioration” in business conditions in recent months and said this is likely to put pressure on the jobs market – which we might want to start calling the employment market, because that might be less misleading.
Per Mr Ramsey’s column: “Self-employment rose to a new record high of 139,000 in Q3 [all quarters are 2019], gaining 5.3% relative to Q2 and 13.9% higher over the year. The surge in self-employment is even more staggering when looking at men. Male self-employment jumped by 7.3% q/q [quarter on quarter] and a whopping 22.6% y/y [year on year]. By comparison, female self-employment fell by 5.4% y/y.
“So have we seen an outbreak of entrepreneurship amongst males? Probably not. The scale of the rise is perhaps more indicative of forced rather than voluntary self-employment. That is, males are moving from more secure employee roles into self-employment… The number of people working may be at an all-time-high, but the total number of individuals working as employees is falling.”
Broadly speaking, the traditional tentpole economic statistics for working people are GDP (or GVA, or similar), the employment rate, the unemployment rate, wage rises and overall inflation.
Taken together they are supposed to give a solid indication of how things are going for men and women who work or want to work. The above puts that in doubt. Below could explain why.
The Resolution Foundation is a UK think tank “focused on improving the living standards for those on low to middle incomes”.
Yesterday they published a report analysing the jobs boom (which is UK wide, not just a Northern Ireland event) and came to a grim conclusion.
All this extra work is a consequence of the face we are poorer.
Other key findings and observations from the Resolution Foundation include:
- The decades-long decline in hours has stalled since 2008, with working hours almost one hour per week higher than they would have been if the post-1980s trend had continued. And despite the stalling of working hours reductions, one-in-ten workers still wants more hours today – a figure that is higher than on the eve of the crisis.
- The employment of women – particularly those in couples (the most obvious candidates for increased labour supply in response to a shock to main earners’ wages) – was flat before the crisis but has accelerated rapidly since. For example, the employment rate of coupled mothers has increased by over 5 percentage points over the past decade.
- Rising employment has been a common feature across advanced economies in the aftermath of the financial crisis – reflecting the common income shock it led to.
- Employment has increased particularly rapidly for women in their early 60s and for those in the lowest income deciles, especially single parents. This is evidence that a rising State Pension age and welfare cuts have contributed to the labour supply shift. This has doubled down on the effects of the wage squeeze for working households, and provided a non-wage-related income shock for workless ones.
As an extra observation that chimes with the Resolution Foundation’s central thesis – with a hat tip to PropertyPal chief economist Jordan Buchanan, who posted this detail on Twitter – is that almost none of the 75,000 new jobs (or, rather, instances of employment) created in Northern Ireland over the past decade have gone to people aged under 50.
That might show that workers who otherwise could have considered winding down are instead doubling down.
The Resolution Foundation’s report comes from CEO Torsten Bell – who also published a piece in the New Statesman outlining his thinking – and Research Director Laura Gardiner.
Per the organisation: “There is no bigger change to our economy over the past decade than the employment boom. Over 3 million more people are in work and the working-age employment rate is around 3 percentage points higher than when we were last broadly at full employment in 2008.
“These are levels no-one thought possible a decade ago and that have flown in the face of demographic headwinds. Why are so many of us working? Because we’re a lot poorer than we expected to be. That’s the fundamental argument of this paper.
“Some have argued that the actions of policy makers or the preferences of firms are the key drivers of the employment boom. But neither offers a satisfactory explanation of developments over the past decade.
“Claims that Britain’s flexible labour market has helped boost employment cannot be true since no significant regulatory changes have been made over the past decade. And arguments that welfare reforms have boosted employment are wide of the mark since Britain’s jobs growth accelerated while the roll-out of Universal Credit was stuck in neutral.
“There is more merit in the argument that firms’ appetite for cheap labour has driven up employment, but such demand would have generated wage pressure, whereas in fact the lack of wage growth has helped define the past decade.
“An increase in labour supply by households, rather than labour demand by firms, is a better theoretical fit with these twin stylised facts of high employment and subdued pay. Why might this have happened? Because a deep recession in which wages fell dramatically, followed by an unprecedentedly sluggish earnings recovery, meant household incomes dropped far further than expected, and stayed lower.
“A rational response from households has been to shield family finances from the depth of such earnings reductions by increasing the number of workers or working more hours.”
So the healthy economic figures are not signs of economic success, they are consequences of failure.
Which is not to say higher employment and higher wages are not bad. We grew more poor and then chose to work more to compensate. If this had not been possible then household finances would, most likely, be worse than they are now.
But it would be ludicrous to celebrate what traditionally would be seen as economic success.
Moreover, with so many figures at record levels, how much extra room is there for growth like this to make up for the fragility of family bank balances? This phenomenon is dressing over a wound and, unfortunately, we might soon be out of bandages.
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