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The jobs market - Silver linings

2015-08-18 10:32:29

Aug 12th 2015, 22:24 by C.R. | LONDON

SINCE the recovery gained speed, opposition politicians in Britain have taken

pleasure in accusing the government of overseeing an economy based on long

hours and low pay. Between 2008 and 2014, the number of Britons in work rose by

2m. But average weekly earnings fell by 8% in real terms, in spite of a rise in

working hours. Economists have labelled this the productivity puzzle ,

referring to the fact that, in spite of an otherwise strong recovery, output

per worker per hour has fallen.

But there are now signs that these job-market trends are going into reverse. At

first glance this may not appear to be unalloyed good news. After several years

of rapidly falling joblessness, figures published by the Office for National

Statistics on August 12th showed that unemployment grew by 25,000 in the three

months to the end of June, to 1.85m. Worse, the number of people in work fell

by 63,000 over the same period. That decline, which started in January, has

lasted longer than any since the recovery began.

Yet there was better news on the wages front. After years of stagnant earnings,

Britons are now getting a pay rise. Wages rose by 2.4% year-on-year in the

second quarter. That appears to be fuelled by productivity rising overall, says

Michael Saunders at Citi, a bank.

In other areas, too, the jobs market is returning to its pre-recession norm.

Productivity has been creeping up partly because there has been a slowdown in

hiring in low-paid industries (such as social care and hospitality) while

sectors that pay well (such as finance and business services) have gone on a

spree. And although part-time and self-employed jobs have helped to fuel the

rise in employment since the recession, they no longer do. Over the past year

the number of full-timers has risen faster than employment overall, while the

number of part-timers and freelancers has fallen. Churn , a measure of how

many workers are changing employer (and a sign of confidence in the jobs

market) is also returning to pre-crisis levels.

Economists are mainly upbeat about these trends, which suggest that the period

of low productivity and low wages may be coming to an end. They see the period

of falling productivity and real wages after the recession as an aberration.

Immigration from crisis-struck Europe and welfare cuts have increased Britain s

labour supply, keeping wages down and encouraging employers to hire more

workers and invest less in machinery and other forms of capital. But with

unemployment now nearing its post-2000 average again, labour shortages are

pushing up wages, cooling hiring.

Although the government boasts that this is all part of its long-term economic

plan , forces beyond its control have helped considerably. Nominal wage-growth

is still stuck at around 2% a year, lower than its long-term average of 4.5%.

Surging real wages have instead been as much the result of low inflation which

is due to the collapse in global commodity prices as of more generous pay. Yet

these benign conditions will not last for ever. And with real earnings still

5.7% below their peak in 2008, the recovery still has much further to go.