Good news on the labour market for now, but new government’s jobs plans raise major questions about labour productivity
13 May 2015
Nigel Meager, director of the Institute for Employment Studies, comments on today's ONS Labour Market Statistics:
'Today's labour market figures from ONS are more good news for the new government. All key jobs indicators (unemployment, employment and vacancies) are positive. The icing on the cake is that pay growth is up from 1.9 per cent to 2.2 per cent while inflation is zero, and pay is rising fastest in some low wage service sectors.
'What of the future? The big concern remains labour productivity, which has flatlined for seven years, and is still below pre-recession levels. Commentators disagree on whether it reflects persistent deficiencies on the supply side of the labour market or is mainly a demand-side phenomenon which, as the economy grows, will solve itself (no sign of that yet).
'In this context, it's worth remembering that the new government's manifesto promised to increase employment by a further 2 million in five years. How plausible is it that the recent strong labour market performance can continue in this way, and if it does, what would it mean for the UK productivity slump? If Cameron's extra 2 million jobs involve working time patterns similar to those of the existing workforce (ie they're not disproportionately made up of part-timers or very long-hours jobs), and if the Office for Budget Responsibility growth forecasts are right (GDP growth of around 2.4 per cent a year), then any productivity recovery over the next five years will be minimal. On these assumptions GDP per hour worked in 2020 would be a mere 4 per cent higher than its pre-recession level, a stunning 25 per cent lower than if the pre-2008 trend had continued. And if our assumptions about working time are over-optimistic (eg if growth leads to skill shortages and a surge in long-hours working), then 2 million extra jobs imply an even worse productivity trend, with serious implications for living standards and international competitiveness.
'To close the productivity gap, something must give – we either need much faster GDP growth than currently forecast, or Cameron's job target will have to be significantly downgraded.'
The Institute for Employment Studies is the UK's leading independent, not-for-profit centre for research and evidence-based consultancy on employment, the labour market, and HR policy and practice.
About Nigel Meager
Nigel is a labour economist by training, and a well-established international expert on labour market and employment policy issues. He has worked at IES since 1984, following posts at the Universities of Bath and Glasgow. He has been Director of the Institute since 2004. He has a long and varied research track record covering the functioning of national, regional and local labour markets, unemployment, skill shortages, labour market flexibility, changing patterns of work and equal opportunity policies and practices.
Further information about Nigel Meager: http://www.employment-studies.co.uk/staff/nigel-meager
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