Why the road to full employment is lined with food banks | Business

Britain’s unemployment rate fell to 3.9% in January, the lowest level in more than 44 years. Is the return to levels of employment last seen in the 1970s a sign that the economy is more robust as Brexit approaches than many feared? We asked three eminent labour market economists.

What is driving the record employment numbers?

Total employment has increased by more than a million in the past two years. Growth has been strongest among 50-to-64-year-olds, with a 682,000 increase for women and 506,000 for men. David Bell – a former adviser to the Scottish parliament on employment and economics professor at Stirling University – says the extra number of women in jobs is probably linked to the sharp increase in the retirement age to 66, equal with men.

Steve Machin, head of the London School of Economics Centre for Economic Performance, says more people of pensionable age are staying in the workforce: “The rise in labour force participation of older people is very striking for women, and most likely links to the values of state pensions being eroded.”

A recent dramatic rise in working-age migrants to the UK is another reason, says John Philpott, former chief economist at the Chartered Institute for Personnel and Development. “We have record employment numbers primarily because we have more people. Immigration has generally been the main determinant of growth in employment numbers, while welfare-to-work policy has been more important to the rise in the employment rate. Working migrants increase both employment and population.”

Unemployment falls to 3.9%

Are these good-quality jobs?

The Office for National Statistics (ONS) last week published employment figures for the three months to January which showed that more than 90% of new jobs were full-time. “That doesn’t mean they are high-quality jobs,” says Machin. “Many people say they would like to work more hours if they were available, strongly suggesting underemployment. Also, many solo self-employed and those on zero-hours contracts say they are doing the job because it was the only one they could get, not because it offered more flexibility.”

Philpott says immigration and welfare policies mean lots of “poor jobs” have been created alongside better-paid full-time roles: “The relative oversupply of workers to ‘poor jobs’ tends to push wages in those jobs down, though for most workers the minimum wage has at least been rising faster than average wages.”

Why are wages rising?

The Bank of England believes the rate of unemployment at which wages start to rocket is 4%. Now the UK has dipped to 3.9%, that should mean bigger pay increases. That would mean rises in excess of 4%, but the peak appears to be the 3.4% reported by the ONS in January.

Bell points out that the public sector was restricted to a 2.8% rise, and wage growth by industry was mixed: “There were falls in construction and wholesaling, retailing, hotels and restaurants. Indeed, the increase is largely driven by finance and business services, probably strong end-year bonuses in the City.”

Philpott says wage growth might only be spurred when unemployment sinks to 3%. Bell and fellow economist David Blanchflower believe the figure could be even lower, at 2.7%.

What does it say about the state of the economy overall?

Machin is gloomy. Since the referendum, the UK has fallen sharply down the rankings of OECD countries for income generated per hour. This measure reflects a slump in investment that effectively robs workers of the up-to-date tools to do their job. Workers in industries hit by the sterling depreciation induced by the referendum have seen both wages and training fall. “Record employment is a good thing,” says Philpott, “but few of us who campaigned against mass unemployment in the past would have wanted to see the road to full employment lined with food banks.”

Is this good news sustainable?

“Prospects for productivity and wages do not look promising,” says Machin. “Investment in physical and human capital is falling sharply. And this is likely to be magnified more in the case of a no-deal Brexit.”

Philpott adds: “The UK labour market is now so flexible that only in outright recessions are we likely to see falling employment.”

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