Friday, 17 April 2015

A lesson in the unusual.

Luke Thomas on what lurks beneath buoyant employment figures

Today the ONS published a new set of employment statistics which show, once again, that the employment rate has risen. This is always welcome news by itself, and the Tory Party have, as expected, made a great deal of these figures, which have also attracted positive comments from the head of the IMF, Christine Lagarde.

It would be churlish not to welcome rises in employment, but using them as a single totemic example of the economic credibility of the Tory party obscures a great deal of important detail about the poor state of the economy under the Tories.

What goes down …

The Tories would have you believe that rising employment following a recession is some special achievement of theirs, and a ringing vindication of their economic policies. But when you compare the changes in employment rates from the start of the last three recessions the UK has faced, you see that rising employment is no special thing at all.

Indeed, the fall in employment rate in the most recent recession was rather modest in comparison to the previous two. Employment simply rises as a consequence of the economic growth that follows a recession, as employers become more confident of economic conditions. There are many important things to be said about the composition of those new jobs, and Andrew Fisher has written extensively on this subject here, but that's not the subject of this post.

... might not come up.

What then, if anything, is remarkable about the recovery stewarded by the Coalition government over the past 5 years? Quite a lot actually, and little of it is remarkable for the right reasons.

Firstly, productivity has never seen such a prolonged period of flat-lining following a recession, and the ‘productivity’ puzzle has been discussed at some length among economists.

Secondly, wage-growth has plummeted, and were it not for the remarkably low level of inflation, this would have caused much more hardship for Britain’s workers.

Thirdly, the growth in our economy has been almost entirely reserved for the service sector – largely the financial sector – while production, construction and manufacturing have stayed below their pre-recession peak for a full five years.

Fourthly, household finances have not improved over the last 5 years, with real household disposable income per person still at the level it was in 2008.

Foundations of sand.

There are many more indicators of economic health than employment, and few of them paint a positive picture of our economy. We are a nation that is debt-laden, with an unproductive labour market that is burdened with low wages, who are living in an economy that is reliant on consumer-spending and the growth of an unchecked financial sector, hell-bent on creating another lucrative housing bubble. 

Our economy is very fragile, and good employment figures are only a mask for its trembling foundations. This is the reality of this Tory-led recovery, and a victory for them in May will only bring more of the same danger.

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