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August 17, 2012

Positive job figures leave economists scratching their heads

Here's the good news: employment is up. In the three months to June, the number of people in work rose by 201,000. But the bad news is that no-one is entirely sure why this should be, given that GDP has shrunk by 0.7% in the same period, according to the Office of National Statistics (ONS).

Responding to the figures, Graeme Leach, chief economist at the Institute of Directors (IoD), said: "The only certainty in the latest labour market figures is uncertainty."

Optimists, says Leach, "will argue that the labour market figures are a much better indication of economic activity at present than the GDP figures, with the latter likely to be revised up over time. Pessimists will counter that this is far too complacent, that the employment increase is overly dependent on part-time workers and a temporary Olympic effect which could reverse over the coming months."

The Federation of Small Businesses (FSB) has also highlighted the prevalence of part-time workers. Commenting on the ONS figures, John Walker, FSB national chairman, said: "While it is good that people are in jobs, these jobs are mainly part-time when people would prefer full-time work. Small businesses are key to sustaining the recovery but they need to be supported in enabling a greater number of people to be in full-time work."

Stephanie Flanders, the BBC's economics editor, has written a blog about the conundrum this week entitled UK jobs — the plot thickens. She also points to the growing numbers of part-time workers as well as self-employed people. Both, she points out, may not be earning as much as they would like.

According to the latest figures from the ONS, the total number of people working part-time has risen by 2.2% in the past year. And the number of self-employed people working part-time has gone up by 8.2%.

Another explanation may be over-staffing. Gerwyn Davies, labour market adviser at the Chartered Institute of Personnel and Development (CIPD), said: "Many employers are holding on to more staff than is required by the current level of demand in order to retain their skills. This is a make-or-break moment for employers — unless growth picks up many will find that they cannot hold on to some workers any longer."

Meanwhile, some commentators are blaming inaccurate GDP statistics. David Kern, chief economist at the British Chambers of Commerce (BCC), said: "Overall, these figures show positive trends in the UK labour market and are difficult to reconcile with other ONS figures, which show three consecutive GDP declines since the end of 2011. If both sets of figures are correct, they imply large declines in productivity, which seems implausible. It is my belief that this could lead to revisions to the GDP statistics in due course."