Labour Market

The UK labour market is doing fine. Our housing market is the bottleneck

Yesterday’s ONS data continued to show the resilience of the UK labour market. The number in work in the May-July period covered by the latest data was a record 32.14 million, nearly 400,000 more than last year at the same time. The proportion of the working age population in employment, at 75.3%, represents the highest rate since comparable records started in 1971. Unemployment has fallen again: 175,000 less unemployed than last year at the same time, while the unemployment rate is an astonishingly low 4.3%, lower than at any time since 1975. Since last year the numbers of economically inactive in the working age population have dropped by 96,000.

So it’s all pretty good news, confounding the doom-laden predictions that Brexit would raise unemployment sharply by the end of 2016. In fact, many commentators are surprisingly downbeat about this. One reason is the one apparent blot on today’s record card: average earnings are not keeping pace with inflation, and so are again apparently falling in real terms. According to the ONS release, average weekly earnings fell in real terms by 0.4% compared with a year previously. This feeds into the story behind the push to abandon the public sector pay gap, very much in the news this week.

But we should always be wary of these ‘averages’. The labour market is an extremely dynamic environment, with people entering and leaving all the time. As I indicated in an earlier blog, if those leaving the work force are paid more highly than those entering – which is usually the case, as they are on average older and more experienced – this tends to drag the overall average down. Meanwhile those who remain in work throughout the period tend to experience a significant gain in pay, though progression up an incremental pay scale (as still happens, for example, in many parts of the public sector), through internal promotion or, very importantly, through changing jobs.

In the course of a year, many hundreds of thousands of people change jobs. When they switch between employers, a prime motive is to increase pay: the Resolution Foundation has recently shown that movers typically experience a pay increase of 7.8%, with those in their mid-20s getting perhaps double that.

Such pay increases reflect the fact that workers are switching to jobs where their productivity is higher. It is a good thing from the point of view of the economy as a whole. One reason for the slow growth in productivity since the recession has been that people have been switching jobs less frequently. Employers report difficulty recruiting in many areas. Quite why this has happened is unclear, but it may have something to do with the state of the housing market and the cost of moving. Whether you are an owner-occupier or renting, the costs of moving have increased.

If we want to encourage people to move between jobs, giving all public sector workers an inflation-busting pay increase in their existing jobs is probably not the way to go. Nor is increasing employment protection through restricting zero-hours contracts or giving full employment rights immediately on taking a job (rather than after two years), as the Labour Party wishes.

They have of course considerably greater employment protection for ‘insiders’ in France, but if yesterday’s protesters get their way and President Macron has to back down from his labour reforms, the French are likely to continue to have an unemployment rate more than double that which yesterday’s healthy figures show for the UK.


2 thoughts on “The UK labour market is doing fine. Our housing market is the bottleneck”

  1. Posted 14/09/2017 at 07:54 | Permalink

    Over the past week, Britain’s biggest mortgage lender, Halifax, said that annual house price growth had slowed to the weakest rate in four years and the official surveyors’ body said that activity was back to 2011 levels in some parts of the UK. Homeowners have so far escaped the house price crash that some forecasters, including the International Monetary Fund, had warned could happen in the event of a Brexit vote. But the housing market has slowed markedly since the referendum.

  2. Posted 24/09/2017 at 11:51 | Permalink

    At the very least Council Tax, SDLT, CGT and Inheritance Tax should be scrapped and replaced with a flat tax on selling prices. This would greatly improve a number issues.

    A 100% tax on the rental value of land would cover those, raise enough extra to reduce damaging taxes by £150bn, allow for the optimal allocation of immovable property and make housing optimally affordable for typical working UK households.

    Our choice of taxation is a millstone around the neck of our economy.

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