UK: SMITH ON ECONOMICS - THE REALITY OF A JOBLESS RECOVERY.

UK: SMITH ON ECONOMICS - THE REALITY OF A JOBLESS RECOVERY. - Voteless and jobless - that's how this recovery is seen, though votes have yet to be cast and employment figures contradict the view. But with current pressures, says David Smith, the jobless

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Last Updated: 31 Aug 2010

Voteless and jobless - that's how this recovery is seen, though votes have yet to be cast and employment figures contradict the view. But with current pressures, says David Smith, the jobless myth may become reality.

If you were to ask the man on the Clapham omnibus, or perhaps these days it should be the man stuck in the M25 traffic jam, for a description of this recovery, the reply would be characterised, variously, as the jobless or voteless (for the Government) recovery, and the talk would be of an upturn in which the consumer has played little or no part.

But such descriptions are at best parodies, at worst plain wrong. Take consumer spending. In 1993, the first full year of recovery, consumer spending (up 2.6%) exceeded overall GDP growth of 2.2%. In 1994, the annus mirabilis for Britain's export-led recovery, when GDP rose by 3.9%, the consumer could not quite keep up, but spending nevertheless rose by a perky 3%.

A long way from stagnation

This year, when the economy looks set to grow by 2.75%, consumer spending is on course for a rise of about 2.25%. Clearly, we have not had a consumer boom, but it is far from stagnation.

Those GDP figures also give the lie, incidentally, to the idea that this has been a painfully slow upturn. Trend growth in the economy is thought by the Treasury to be 2.25% a year. Admittedly, growth is expected to be above-trend during recoveries, and this is precisely what has happened. Averaged out over the 1993-5 period, the economy has grown by 3% a year. No boom there either, but not bad.

As for the voteless recovery, it certainly looks that way from the opinion polls, and from local and by-election results. The normal relationship between economic optimism and support for the Government was destroyed in September 1992, when the ERM strategy collapsed, and has yet to be re-established. But, in a very important sense, we will not be able to tell for sure that the recovery has been voteless until the general election. There is an argument that the electorate has been determined to inflict punishment on the Government for its earlier loss of control of policy, and for the tax increases, but that normal service could be resumed in the 1997 election.

Surely, however, it has been a jobless recovery? One can barely open a newspaper without reading that job insecurity is to be blamed for some new social ill. We all know about white-collar redundancies, and today's management bible reads: rationalise, and then rationalise some more.

Even here, however, the myth does not fit the facts. The recovery has been far from jobless. Take unemployment. From a peak of three million early in 1993, it has fallen, quite quickly at times, to the present figure of 2.25 million. The chart, which shows the workforce in employment set against productivity growth, appears to show a subdued rise in jobs since 1992, fitting the jobless recovery story. The components of the employment data deserve, however, closer examination. There have certainly been some declines. The armed forces, together with people on government training programmes, have experienced a fall in numbers, of 142,000, since late 1992. There has been a slightly larger combined fall in civil service numbers and in other public sector employment.

These falls represent real jobs, but they are also structural rather than cyclical. In the case of the armed forces, they reflect the consequences of the peace dividend. For government, they are part of an attempt to move towards smaller government.

The jobs that are purely recovery-related are those in the private sector. And, according to calculations by Kevin Gardiner, an economist with Morgan Stanley, business employment (together with self-employment) has increased by more than 600,000 over the past three years - a not inconsiderable increase, as John Major would put it.

Jobs not just for part-timers

Ah but, I can hear you say, haven't all these jobs been for part-timers, and in particular, for women, in other words, the Tesco-Sainsbury recovery? Again, up to a point. But this was very much a story of the early stages of the recovery. More recently, far more full-time jobs have been created than part-time ones. The official Labour Force Survey shows that, in the 12 months to mid-1995, full-time employment increased by 249,000, against a rise of 29,000 in the number of part-time jobs.

This leaves us with a puzzle. How come the feeling of job insecurity is all pervading, at a time when employment has been increasing? There are two reasons for this. One is that rationalisation has been occurring in areas where there was previously the notion of a job for life, for example the civil service and the banks. Job losses in these areas have been substantial, highly visible and, for many, worrying. If these jobs are not safe, the argument goes, then nothing is.

Gloomy employment outlook

Related to this, there is also a genuine insecurity in the fact that an increasing (but not overwhelming) proportion of new jobs are on short-term contracts. Flexibility is usually good for the employer - it is not always good for the employee's peace of mind.

The jobless recovery may not be supported by the statistics but, like all economic labels, it will come right eventually. And it could be that we are approaching that point. There has been a distinct levelling-off in the downward trend of unemployment this year. Meanwhile, the employment outlook has become gloomier, for a very simple economic reason.

When the recovery was strong, as it was last year, firms could increase both employment and productivity. UK manufacturing output grew by 4.2% last year, on the back of nearly an 8.2% rise in exports. But when output is growing more slowly, as it now is, the only way to maintain the productivity improvements necessary to achieve competitiveness is by taking a tougher attitude to jobs. We come back to our old friend rationalisation.

The challenge may be less for services than for manufacturing, but the pressures, in an economy which is settling down to something like trend growth (or lower) are economy-wide. The myth of the jobless recovery may be about to become a reality.

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