Three important trends affecting Britain’s economic recovery
THERE are three figures you need to take away from yesterday’s slurry of economic news. First, around 945.3m hours were worked in the UK economy between July and September, up 2.6 per cent year on year and the highest since April 2008. Second, total pay rises in the public sector were 2.2 per cent year on year, against 1.7 per cent in the private sector. Public sector pay freeze – what pay freeze? Third, Greece’s economy is now 7.2 per cent smaller than it was in the third quarter of last year; the Eurozone crisis is getting worse, not better.
Let’s take these three in turn. The total number of hours worked in the economy is the purest measure of employment. It adjusts for the huge rise in part-time work since the recession. It suggests a strong recovery in the labour market, despite official GDP numbers that suggest no real increase in output during the same period. So either the statistics are wrong, or output per hour worked is continuing to collapse, partly as a result of problems in high productivity sectors such as the North Sea oil and the crisis in the City, where many high-end jobs have been lost.
The more usual (but unadjusted for part-timers) figures were also good: unemployment is down 110,000 on the year; employment is up a cool 513,000 year on year. The employment rate for those aged from 16 to 64 was 71.2 per cent, up 1.0 per cent on a year earlier. Given the bloodbath in the public sector, where jobs are being cut, that is a very strong performance by the private sector on any measure, despite a rise in the claimant count.
What is much more shocking is that George Osborne may be cutting state jobs but has no control over public sector pay. Over the past two years, private sector pay is up 3.8 per cent; public sector pay is up 4.3 per cent. The chancellor’s supposedly crucial pay freeze has been blatantly ignored, partly because many pay hikes have been camouflaged as promotions. A small part of this may be accounted for by a reclassification of some workers – but clearly, spending is not being cut by as much as hoped.
Despite that, however, real pay is falling in both public and private sectors because hikes are not as large as inflation. The real pay cuts are not as large as Osborne would have hoped for in public sector, and are greater than he thought they would be in the private sector.
But there is a silver lining to depressed real wages. Private sector jobs are like everything else: if it costs less to hire somebody, the demand will go up, which helps to explain rising private sector employment. People are also more willing to take temporary jobs – 40 per cent of those in such jobs took them because they couldn’t find permanent work, the highest since 1997.
It could be worse: Greek GDP is collapsing at an accelerating rate; next year will probably be the sixth year of recession for that country. Greece is genuinely in a recession of the sort seen in 1930s-America, propped up only by handouts. Third quarter GDP in Portugal collapsed by 0.8 per cent. Worst of all, the crisis is now spreading to the centre of the Eurozone, with overall industrial production for the region slumping by 2.5 per cent month on month in September.
It is bizarre, therefore, that world opinion has become more positive in recent months towards the Eurozone. The reality is that a new, even deeper crisis is brewing and that even the supposedly stronger members are beginning to be dragged down by the periphery. Despite employment growth, life is tough for millions of people in the UK. But we should at least count ourselves lucky we did not join the single currency.