According to the Office for National Statistics, in the final three months of last year unemployment fell by 13,000 to 2.5 million and employment rose by 154,000 to a new record of 29.7 million, its highest since records began in 1971. At the same time, UK GDP contracted by 0.3%. In the language of economics: it’s befuddling.
Part of the increase can be attributed to good old population growth, of course. There’s also the fact that companies, nervous at the current state of the global economy, are holding off on buying expensive machinery and equipment and are instead taking on more staff (the upfront costs are considerably lower than investing in a £2m bit of plant). At least, this is one solution that economists have found to the so-called ‘productivity puzzle’.
Jobs may be on the up, and unemployment falling, but the fruits of our labours are shrinking. The earnings rise – up 1.4 per cent in the final quarter of last year (up an even weaker 1.3% if bonuses are excluded) - remains stubbornly below inflation. ‘Prices therefore increased by more than earnings’, says the ONS, which means that consumers are being squeezed ever more brutally each month.
Nevertheless, across 2012 as a whole, unemployment has fallen by 156,000, and employment has risen by 584,000. Self-employment has reached record levels (with more than 4.2 million people now classified as self-employed). And happily (for the Treasury), the Jobseekers claimant count has also fallen sharply, down 12,500 in January. That’s the third significant drop in as many months.
The question that all economists are asking now is this: with the economy in dire straits, consumer demand down, earnings squeezed, and the ongoing crisis of confidence among British businesses, how long can the downward trend in unemployment continue. And if the jobs bubble bursts, what will that do to our fragile growth prospects?