Another month, another set of employment statistics, with headlines about employment reaching its highest level since records began. Once again, the self-employed are largely responsible for the surge over the last quarter.
It’s clear from this ONS chart where the recent employment increase has come from over the past year.
The Resolution Foundation were quick off the mark with this chart which shows where the employment growth has come from in the last quarter and since 2008.
But here’s the weird bit. The self-employed contribution to the last quarter’s increase is around two-thirds. There are actually 6,000 fewer employees reported than last month so any record-breaking in this latest set of figures is down to the 41,000 extra self-employed people since the last set came out.
After what looked like a fairly solid growth in employee jobs, the figure fell back again toward the end of 2013 and, once again, self-employment increased.
This isn’t really what you’d expect. If the most recent estimates are right, the economy grew at more than 3 percent over the last year. Usually, when countries come out of recession, there is a steady increase in employment. Now, though, the increase is far from steady. All we can say for sure is that summat funny is going on!
As Philip Inman said, this leaves more questions than answers.
Why, when jobs vacancies were rising strongly and private firms reporting they are more confident than at any time for a decade, did self-employment return as the engine of jobs growth? Employment is known as a lagging indicator. Is that the reason, or is something else at play?
The Resolution Foundation and the Chartered Institute for Personnel Development have done some research in this area, asking people whether they chose self-employment or did it chose them. But so far, as they would admit, the analysis is superficial. Many say it was a positive choice. Maybe it was. But it fails to explain the ups and downs in the ONS figures, which are violent. The research also shows self-employed workers earn around 40% less than their full-time employee equivalents. And yet it is the most popular way of earning an income in the last year and as the boom has swelled, so have low paying self-employment jobs.
Mark Carney was widely quoted yesterday as saying that the economy was heading back to normal but you need to read a bit further to find the caveats. The Bank’s growth forecast for this year is 3.4 percent and it has upgraded its forecast for next years from 2.7 percent to 2.9 percent. This is more optimistic than the OBR’s forecast in March but it would still make for a slow recovery by historical standards. After previous recessions, a first year of low growth was followed by a couple more in which the economy surged ahead to get us back to trend growth. This time, the projections are saying that, after around 3 percent growth in 2014, that’s your lot. That was your post-recession boom folks. Don’t spend it all at once. OK, these are only projections but a lot of the projections seem to be saying the same thing.
(Chart: My update of this ONS chart, adding OBR’s forecasts.)
There is nothing normal about any of this, at least, it’s not normal compared to what we have seen in the recent past.
It’s possible that we may have to re-think what we mean by trend growth because we are showing no signs of getting back to it.
(Charts from the Resolution Foundation.)
At the start of the recession, most of us assumed that it would be a worse version of what went before. A deep slump would therefore be followed by a reasonably strong rebound. That doesn’t look like it’s going to happen, which makes the discussion about what is structural and what is cyclical very difficult. Will the economy bounce back after all? Will we look back from 2020 to see 2014 and 2015 as the start of the great recovery, inevitably slow given the depth of the slump? Or will we look back on years of below 3 percent growth and finally conclude that there has been a permanent downward shift in our economy?
When I wrote this piece on the output gap at the end of 2012, I said that we wouldn’t know how much of our economic underperformance was structural or cyclical until the economy started growing again. Well now it is growing and we still don’t know. Mark Carney’s normal might not be the normal we thought we were going to get.
Ever since the financial crisis, I’ve heard people say ‘when all this is over’. Nowadays, I’m not even sure what ‘all this’ is, let alone when it’s going to be over.