Wednesday, December 09, 2009

Jobs and the recession

The UK has had a nasty recession in terms of lost GDP. See how our current mess compares with what happened in the early 1980s, the early 1990s and the recession that the USA has recently edged out of:

Not good at all. On the other hand, look at how these four recessions compare in terms of the fall in the number of people in work:

Employment, while it has undergone its first serious fall since 1992, is holding up pretty well in comparison. This comparison is even more striking when you factor in the large drop in GDP.

The pain of this recession is being distributed more equally: rather than a big chunk of people losing their jobs, we’re seeing a smaller chunk losing their jobs but a much larger number having their pay frozen or cut (often with cuts to their hours as well). Earnings growth is well down, and part-time employment is at its highest level since records began, as is the number of those part-timers who wanted full-time work instead.

Employers seem to be doing everything they can to avoid having to lay people off completely. This is probably not so much about kindness to their workers as it is anticipatory self-interest: when demand picks up again it’ll be much easier to get the part-timers back to normal hours than it would be to recruit and train up a load of new people to replace the one who would have been laid off.

What’s more, the flipside of ‘employment is holding up better than GDP’ is that productivity has slumped. This will need to be reversed (and it will be) when the recovery comes.

All of this has a few implications.

First, if the recovery is weak, or if there’s a second dip to the recession in a year or so, a much bigger rise in unemployment becomes much likelier: employers can only keep semi-productive staff on for so long before it becomes too expensive.

Second, even a decent recovery may have relatively little impact on employment, at least for a while. Rising demand for labour will at first be met largely by part-timers returning to full-time work. So the people who have lost their jobs, as well as recent school, college and university leavers, may still struggle to find work. There’s a danger of long-term unemployment for many of these people.

Third, part of the surprisingly large fall in tax revenues is related to the surprisingly small fall in employment. To illustrate: if someone on £20,000 loses their job, they stop paying income tax and NI – but a good chunk of those earnings were untaxed anyway, because of the personal allowance. However, if ten people on £20,000 each take a 10% pay cut, then all of the total £20,000 that the employer saves is money on which tax and NI were being paid, so the loss to the Exchequer is larger.

Cue Alistair Darling’s pre-budget report.

(Data for charts: UK GDP growth, X13, series IHYQ; UK adults aged 16+ in employment, seasonally adjusted, LFS summary, series MGRZ; US GDP growth, table 1, page 6 (recalculated to quarterly rates); US number of adults aged 16+ in employment, seasonally adjusted.)

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