Job creation and employment: ‘What jobs’ is as important as ‘how many jobs’

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Job creation and employment: ‘What jobs’ is as important as ‘how many jobs’

Between 1998 and 2017, employment in the UK grew from about 17 million to about 19 million. During the Great Recession between 2008 and 2010, the UK employment experienced a sharp decrease of approximately 3 percent, but by 2011 the recovery had already begun. By 2017 the employment had increased by approximately 21 million (ONS). If we then look at the period from 1998 to 2017, we see that, even with the large negative effects of the Great Recession, there was an increase in employment just sort of 25 percent. The most recent ONS data show that the growth in employment has continued, with the UK employment rate being estimated at 75 percent, 0.4 percentage points higher than a year earlier, while unemployment rate is estimated at 3.8 percent, 0.3 percentage points lower than a year earlier. IHS Markit data though show that the private employment growth decreased for the fourth consecutive month in December.
The employment rate for all people increased 0.4 percentage points on the year to a record high of 76.2%.

ONS

There was a 24,000 increase in employment on the quarter. This was driven by a quarterly increase for men (up 54,000) and full-time employees (up 50,000 to a record high of 20.71 million).

ONS

All these should be strong indicators of a healthy labour market and a healthy economy. But the game of employment has changed critically during the past decade or so, with the emergence of the sharing economy and online platforms. There is also an increase in the popularity of the so called "zero-hours" contracts. As another ONS report shows, the earnings in real terms are still lower than before the 2008 to 2009 recession regardless of all the record breaking employment and unemployment rates. That says a lot about the real state of the economy. Moreover, ONS data show that the annual increase in the number of self-employed people was two-thirds larger than the annual increase in the number of employees. Many of these new "self-employed" are likely disguised wage-employees, also known as false/faux self-employed, who are forced to register as self-employed even though they work for a single business entity.

It is not a secret any longer that companies like Uber and Deliveroo, regardless of the flexibility they offer to the workers who use their online platforms to earn a living, are exploiting the labour market system to provide themselves with cheap employment by asking their employees to register themselves as "self-employed". This way they avoid paying the typical taxes for health and pension they would have to pay otherwise. During the Great Recession and the years that followed, the number of self-employed has been increasing continuously. The growth in the number of part-time self-employed slowed down after 2015, but the number of full-time self-employed has kept on increasing. Also, while women used to dominate part-time employment, the numbers of men in part-time self-employment have been increasing at a faster rate than women, with their numbers reaching closer to the levels of women. The increase of self-employed during an economic crisis is a well-documented effect, since those who are unable to find employment elsewhere become self-employed out of necessity. But that should be an effect observed during or around the time of a recession. In the UK the increase is still ongoing a decade later.

Another very important information comes from the most recent data of the UK Composite PMI, which points to a modest reduction in overall business activity (IHS Markit). As the report highlights, the December 2019 data indicate a lower volume of output in the service sector and a much sharper drop in manufacturing production, with the latter falling to the greatest extent for almost seven-and-a-half years. Now, that does not sound like a growing and healthy economy does it? Indeed, it does not.
Flash UK Services Business Activity Index 9-month low (Dec: 49.0 from Nov 49.3).

IHS Markit

Flash UK Manufacturing Output Index 89-month low (Dec: 45.8 from Nov 49.1).

IHS Markit

The latest ONS report shows that the average regular pay (before tax and other deductions) for employees in Great Britain is estimated at £510 per week in nominal terms. In real terms it is £472 per week, which is still £1 (0.2 percent) lower than the pre-recession peak of £473 per week for April 2008 (constant 2015 prices). Retail, wholesale, hotels and restaurants, which is the sector with the lowest average weekly pay, saw the lowest growth among all other sectors, with an estimated 2.3 percent for total pay and 2.5 percent for regular pay; that is £339 regular pay compared with £510 across the whole economy. The public sector has also experienced a consistent lower pay growth than the private sector since September 2014. The average growth of the public sector pay is higher if we include the pay rise that was given to NHS in 2018, in addition to the one-off payment to some NHS staff in 2019. But this is a tricky one since NHS was the protagonist in the Brexit campaign and a hot topic in every political discussion since.

The data reveals a sad reality about the dynamics at play in the UK labour market and the business sector. That is, a lower business dynamism and a lack of recovery to pre-recession levels. The lower business activity in combination with the domestic political uncertainty for the future of the UK over the Brexit outcome has certainly affected the slowdown observed in the data of services and manufacturing. However, that alone cannot explain how unemployment is at record lows. If anything it enforces the belief that the new jobs are, at least partially, attributed to faux and dependent self-employment registrations. For some reason after a decade since the Great Recession the health of the UK economy has not recovered to the pre-recession levels. IHS Markit UK Household Finance Index (HFI) fell to a three-month low of 43.2 in December 2019, down from 44.4 the month earlier. This signalled a further deterioration UK households' perceptions towards their current financial health. It maybe that the economy was deteriorating even before the 2008 - 2010 economic crisis, and after the big dive during the crisis, it simply resumed its earlier deterioration.
Strains living costs was signalled by the latest survey data, with UK households reporting continued inflationary pressures. However, the increase slowed for a third month in a row and was the softest since November 2018. That said, living cost expectations remained in strong inflationary territory.

IHS Markit

There is of course certain variation within the UK. For example London has experienced a modest rise in permanent salaries in the past few months, while inflation has fallen to a three years low (IHS MArkit November data). The pay of new employees and temporary staff also saw a small increase. Recruitment consultancies across Scotland also signalled an increase in the number of permanent staff placements, though the increase was overall only marginal. However, the rise in Scotland contrasted with a fall at the UK level, where permanent placements declined for a ninth consecutive month. Hence, the effect depends on where and how we look at it: overall the past 20 years; post-recession years only; whether we see the picture of the UK overall, or focus on England, Wales, Scotland, N. Ireland separately; or if we are comparing London to every other region.

References

IHS Markit, (04 December 2019) 'IHS MARKIT / CIPS UK SERVICES PMI', online at: https://www.markiteconomics.com/Public/Home/PressRelease/9418a78409c84e27bf6c58df14a40722

IHS Markit, (06 December 2019) 'KPMG and REC, UK Report on Jobs: London', online at: https://www.markiteconomics.com/Public/Home/PressRelease/a5875a7909b047c08d2dcd984f4b54f8

IHS Markit, (06 December 2019) 'Royal Bank of Scotland Report on Jobs', online at: https://www.markiteconomics.com/Public/Home/PressRelease/267631215e0d44d89e1d87b9d1bfa832

IHS Markit, (16 December 2019) 'IHS Markit / CIPS Flash UK Composite PMI', online at: https://www.markiteconomics.com/Public/Home/PressRelease/f73a3f4a419f4aac9f8b32b0831dfdd3

IHS Markit, (16 December 2019) 'IHS Markit UK Household Finance Index', online at: https://www.markiteconomics.com/Public/Home/PressRelease/92b62d04e8f0424398c78b68a10f947d

ONS, (17 December 2019) ‘Average weekly earnings in Great Britain: December 2019: Estimates of growth in earnings for employees before tax and other deductions from pay’, online at: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/december2019

ONS, (17 December 2019) ‘Employment in the UK: December 2019: Estimates of employment, unemployment and economic inactivity for the UK’, online at: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/employmentintheuk/december2019

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