Labour market still weak despite private sector boost

Unemployment is down again, thanks partly to half a million new private sector jobs. But the rise in the claimant count shows all is not well.

by James Taylor
Last Updated: 19 Aug 2013
The latest labour market figures are, again, a mixed bunch: unemployment fell in the three months to May, albeit only by a modest 24,000 to 2.45m (so the overall jobless rate remains unchanged at 7.7%). But the more timely claimant count has just seen its largest rise for two years: 1.52m people are now on the dole, the highest figure since March last year. The public sector continues to shed jobs, and although the private sector is doing its best - with 520,000 jobs created in the last year - it's unlikely to be able to pick up all the slack in the current climate.

There were some positive signs within today's figures. As well as that big boost in private sector jobs, there was also a fall in the number of long-term unemployed and (surprisingly) in the number of 16-24 year-olds unemployed - which tend to be two of the most intractable problems in the labour market. And it's true that the Government's determination to get more people (particularly women) off income support and onto Jobseekers' Allowance clearly accounts for some of that bigger-than-expected jump in dole claimants.

On the other hand, it seems fanciful to think it can account for an increase of that magnitude. And although that fall in youth unemployment is welcome, it's not necessarily because they've found jobs - many of them are just choosing to go back into education instead. This is arguably no bad thing, insofar as it improves their skills in the longer term. But it does paint an unduly flattering picture of the current state of the labour market.

Equally, total pay (including bonuses) was up 2.3% year-on-year, well below the current rate of inflation. This may be helping to curb job losses, but it means that those in work are going to have less money in their pockets at the end of the month. Again, that’s bad news for growth this year.

So as we said - a mixed bunch. The private sector job growth is certainly encouraging, and there are still no signs of the bottom falling out of the labour market completely. But it's hard to escape the feeling that with the economy still going sideways, and more public sector job cuts to come, things will probably get worse before they get better.


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