The job market in the UK is booming – but not for the reasons you think

There may be bad news ahead, but there are only tiny hints of that in the present data. As things currently stand, the economy is creating more employment than ever before

Hamish McRae
Tuesday 10 September 2019 21:29 BST
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The UK has created a very flexible labour market that is good at matching people to the tasks that need to be done
The UK has created a very flexible labour market that is good at matching people to the tasks that need to be done (Getty)

The UK job market continues to surprise – and in a good way. Despite all the uncertainties about Brexit and the threat of a global turndown, the economy is still creating more jobs and sharply increasing pay levels. Employment as a percentage of the people of working age is equal to the highest ever. Unemployment is down to 3.8 per cent, the lowest since 1974. And pay is up 4 per cent year-on-year, the sharpest increase since 2007.

There is a short-term puzzle here and let’s try and unpick that. But there is also a longer-term pointer to the ways in which employment will develop in the years ahead, not just in the UK but across the developed world. The puzzle first.

The job market ought not to be so strong. It is not just that growth is slow, probably between 1 per cent and 1.5 per cent a year, though in the second quarter it was actually negative. From a business perspective the uncertainties are self-evidently huge, and taking on new staff involves a risk. If demand falls you may have to lay them off, which is expensive and, for any decent employer, distressing.

Crawl through the data and it is true there are some signs of weakness: a fall in vacancies, a slowing of the rate of job growth, and suggestions that this 4 per cent increase in wages may be a peak. In addition there has been a bit of a switch of the job growth towards self-employment. But add in the evidence from national insurance contributions, which have been reasonably strong, and the general picture remains solid. There may be bad news ahead, but there are only tiny hints of that in the present data.

So what is the explanation? It is guesswork, but I think there are two main elements. One is that we are under-measuring growth. It is very hard to measure growth in a predominantly service economy. You can count the number of cars being produced or the number of houses built, but counting the number of takeaway meals, or haircuts, or hours of babysitting, or dogs being walked is unbelievably difficult. The online revolution must have brought huge increases in efficiency but these are not showing in the stats.

Indeed it may be that employment is a better guide to what is happening to the economy than the official growth figures. Eventually the statisticians will get to grips with the online economy, but it may be a long time before they do so. Meanwhile we have to make intuitive judgements on the basis of imperfect information.

The other element is longer-term. It is that the UK has created a very flexible labour market that is good at matching people to the tasks that need to be done. It is far from perfect, of course, and some of the imperfections are showing up now in areas where we have relied on seasonal and migrant workers. But we have been good at retaining older workers in jobs, roughly doubling the number of people over retirement age still working over the past 20 years. And we have been good at creating work for people who choose (or are obliged) to be self-employed.

I would not pretend that this is the ideal way of organising a labour market, and there are serious problems of insecurity, poor business practise in managing self-employment contracts, some tax leakage through disguised employment, poor training, low productivity – the list is long. But as the developed world ages it is going to have to revise the way it organises its whole economy, and figuring out how best to match people to the tasks that have to be done is a key part of that.

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This is a learning curve, but these job figures do suggest that the UK is learning. We don’t know what the jobs of the future will be. Think of all the people now creating apps for smartphones. Well, the iPhone is only 12 years old. Not only did none of those jobs existed 12 years ago; no one knew they could exist. There is probably another ground-breaking advance out there that will generate huge employment in a decade’s time – indeed not probably, almost certainly.

That leads to a final point. We are glimpsing in the UK the job market of the future. There are examples in other countries, notably in Scandinavia, of similar patterns, and in some areas more progress has been made than in the UK. But meanwhile, for all its imperfections, then UK economy is creating more jobs than ever before and employing a higher proportion of its people than ever before. And wages are up 4 per cent in money terms, 2 per cent in real terms, on the summer last year.

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