Job done: how we got down to work after the crisis

It is time to give credit where it is due. I am referring to something without which recent years would have been infinitely more difficult. The old adage — that it is a recession when your neighbour loses their job, a depression when you lose yours — has not played out. Britain’s job market has changed but it has done what it does best, which is to generate employment.

A few days ago, the Recruitment & Employment Confederation (REC) reported that permanent staff placements had reached their highest level for 27 months, with overall staff demand at its strongest for nearly two years. Its survey, based on responses from recruitment agencies, pointed to continued buoyancy in employment.

“Some employers are offering higher pay but many are struggling to hire”

That chimes with official figures showing that in the March-May period of this year total employment rose above 32m for the first time, with the proportion of 16 to 64-year-olds in work reaching 74.9%. This was the highest since comparable records began in 1971.

Before looking in a little more detail at what is happening now, let me first track back to the time when we realised that the job market was behaving differently.

When the financial crisis hit a decade ago, it took a while before the economy succumbed to recession. The last hurrah for the great expansion was the first quarter of 2008, after which the economy dived into its deepest recession in the postwar era. By the time the economy troughed in mid-2009, it had shrunk by 6.3%.

Previous experience might have suggested that employment would have fallen by at least as much. It did not. From an employment peak of 29.75m in March-May 2008, it dropped to a low point of 29.01m in January-March 2010.

The fall in employment in that deep recession, at 2.5%, was remarkable for how small it was. The experience of the great recession of 2008-9 stood in sharp contrast to its much milder predecessor in the early 1990s. In the 1990-91 recession, the economy contracted by just 2%, although it seemed worse at the time.

It certainly was worse in terms of employment, which dropped by a hefty 6.2%. In this tale of two recessions, the later one was a mirror image of the earlier downturn.

So it has continued. After the great recession it was widely expected that, having hoarded workers in the downturn, employers would be slow to hire during the upturn. Critics of coalition policy, including Labour, said austerity cuts in public sector employment would not be replaced by an increase in private sector jobs.

Both views were wrong. Though employment growth was initially subdued, with a significant concentration of part-time work, it picked up and shifted decisively towards full-time jobs.

As for replacing those lost government jobs, public sector employment has fallen by just over 1m since 2009, with the bulk of the drop concentrated in local government. Overall employment, meanwhile, has risen by 3m. The private sector has not only replaced those lost public sector jobs but has done so four times over.

Why has the labour market done so well? The flexibility established in the 1980s has come good, albeit with a lag, in recent years. Part of that flexibility has been reflected in the weakness of wages. No central planner could have done what Britons collectively did when crisis hit — price themselves into jobs.

Monetary policy has also helped to deliver more employment, both since the financial crisis and since last year’s EU referendum. Andy Haldane, the Bank of England’s chief economist, recently suggested that higher rates could have delivered slightly higher productivity but at the expense of about 1.5m jobs

What about the current situation? Forecasters were wrong to assume that Brexit would result in an immediate rise in unemployment; the experience of the crisis and recession showed a far more resilient labour market than that.

Employment growth has slowed a little — in the past 12 months it has risen by 324,000 compared with 636,000 in the previous 12 months — but it remains healthy. The Bank predicts that the unemployment rate will remain at about its current 40-year low of 4.5% over the next three years. You should never say never, but the prospect of a return to the double-figure unemployment rates seen as recently as the 1990s seems remote.

The question is whether there is scope for employment to rise much further. One of the sources of Britain’s labour market flexibility in recent years has been the availability of EU migrant workers. They have not prevented employment among UK nationals rising to record levels but they have provided a key source of labour supply.

That supply has itself been flexible. It is not generally known but, after EU enlargement in 2004, net migration into Britain rose sharply until the crisis hit, but then did not get back to its 2007 level until 2014. It was responsive to the state of Britain’s labour market.

Now, net migration from the EU is falling again, to 133,000 last year from 184,000 in 2015 (new figures will be released on August 24). Employment among EU nationals continues to rise, up 171,000 over the latest 12 months, but this was slower than the 226,000 rise of the previous 12 months. And there has been a shift in recent months towards EU nationals from Romania and Bulgaria and away from those from the EU’s western European member states, traditionally the higher-skilled, higher-earning EU workers.

The REC’s report on jobs, to which I referred earlier, found that alongside strong demand for staff, availability is falling. Some employers are responding by offering higher pay but many others are struggling to recruit.

Kevin Green, the REC’s chief executive, says those parts of the economy most dependent on EU workers are under the greatest pressure. This comes, of course, before Brexit, though at a time when the weak pound has made working in Britain less attractive for EU workers.

When it comes to the labour market, people will complain, sometimes but not always with justification, about insecure jobs, zero-hours contracts and exploitative “gig” economy arrangements. These things would, however, be a lot worse in a weaker job market in which opportunities were far harder to come by.

Britain’s labour market has been a success story, which has saved us from much worse fates. Let us hope nothing scuppers that success.

Author: David Smith|The Sunday Times|13th August 2017