The recovery is being driven by a revolution in the jobs market
ON the face of it at least, all is going swimmingly well for the British economy. The best news continues to be on jobs, but GDP is also powering ahead, pay is growing on some measures and falling far less rapidly on others, and a more confident attitude is becoming increasingly entrenched across British boardrooms.
While the outlook is especially strong in London – as the latest regional purchasing managers’ figures from Lloyds demonstrate – the recovery has spread across the country.
To top it all, the Office for National Statistics is about to change the way it accounts for economic output, a move that is expected to increase the official size of the economy by up to five per cent. Our productivity, GDP growth, savings rate and the rest will all go up – nothing real will have changed, of course, but it is bound to add to the strengthening sense of optimism.
The extraordinary performance of the labour market is certainly one of the parts of the story that is undeniably robust. Michael Saunders of Citigroup has analysed the numbers. The official statistics reveal that UK jobs growth reached 1.5 per cent year on year in the fourth quarter of 2013, the strongest performer of all of the G7 economies and twice the 0.6 per cent average seen across the Group of Seven richest nations.
This was not just a one-off performance. A year earlier, UK job growth was already more than twice as strong as in the rest of the G7. Britain’s jobs growth in the fourth quarter of 2012 had hit 2.1 per cent year on year, once again the best performer among the seven richest nations, which together recorded a jobs growth rate of just one per cent at the time.
Total employment in Britain is up by a remarkable 3.5 per cent over the last eight quarters, the Citigroup research estimates, the biggest gain since 1988-90, at the height of the unsustainable Lawson boom. Assuming that the GDP figures for late 2012 and 2013 in particular aren’t revised up so severely as to render them entirely unrecognisable, this is a first for the UK. In the past, very strong jobs growth was always caused by very strong economic growth. This time around, the resurgence in employment started well before the growth returned.
It is not just that more people are working – they are also spending longer in the office or on the shop floor, confirming that the health of the labour market has genuinely improved. The total number of hours worked rocketed by 4.7 per cent over the last eight quarters, the fastest rate of growth of the past 40 years apart from, once again, the mad years of 1988-89. All of this, of course, has taken place at the same time as the government has continued to cut public sector jobs – more than all of the increase has thus been accounted for by the private sector.
The UK labour market was at its most deregulated in the mid 1990s; since then, the amount of red tape has once again increased significantly. But changing attitudes trumped the regulatory framework, and the workforce has become unexpectedly agile. This is clearly a golden age for entrepreneurship, especially in London, but there is more to it than that. Self-employment surged 17 per cent over the past five years and is still rising; while at first the increase was made up of people who preferred to work as consultants rather than being forced to sign on to the dole, many of the more recent entrants appear happy with the choice.
Self-employment jumped 6.8 per cent year on year in the last three months; as the Citigroup research points outs, this accounted for over half of the rise in total employment. Two thirds of the increase was accounted for by people aged 50-74. In the past, recoveries in the labour market were driven by increased demand for workers; today, it is just as much a case of a better, more flexible and more entrepreneurial supply creating its own demand.
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