Wages up, jobless down, but confidence is lacking Posted by David Smith at 09:00 AMCategory: David Smith's other articles My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt. Students of British election history will know that official figures can often scupper the best-laid plans of political parties. Bad trade figures, by legend inflated by a couple if jumbo jets, famously helped cost Harold Wilson, the Labour prime minister, a general election in 1970 he was expected to win. The release in May 2016 of official figures showing a record figure for net migration the previous year changed the nature of the referendum debate and helped swing a leave vote the following month. So it is with some trepidation that ministers, who no longer see
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Wages up, jobless down, but confidence is lacking
My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.
Students of British election history will know that official figures can often scupper the best-laid plans of political parties. Bad trade figures, by legend inflated by a couple if jumbo jets, famously helped cost Harold Wilson, the Labour prime minister, a general election in 1970 he was expected to win. The release in May 2016 of official figures showing a record figure for net migration the previous year changed the nature of the referendum debate and helped swing a leave vote the following month.
So it is with some trepidation that ministers, who no longer see the figures in advance, will have awaited the latest batch of economic numbers. But it is, for then, a case of so far, so good, for the economic figures, if not the latest NHS performance data. Third quarter gross domestic product was softer than expected, up just 0.3% and the 12-month rate of growth was the weakest since 2010.
Importantly, however, the economy escaped the political elephant trap of a recession.
There were also dangers for the government in the latest labour market statistics. But, despite some softening, including a 58,000 fall in employment in the latest three months, the news was good enough to provide, in normal circumstances, an election-winning platform.
The unemployment rate dropped back to 3.8%, its lowest since the mid-1970s. Real wages are rising, with the growth in money wages, 3.6%, running at twice the relevant inflation comparison. 1.8%. The day after those figures were released, other official data showed a further drop in the inflation rate, to just 1.5%.
The job market is not perfect. Vacancies have been falling since the turn of the year and the drop in employment in the latest three-month period told us that for some workers, particularly women, the job market is softening. All the fall and more was, however, accounted for by a drop in part-time work while full-time employment rose.
So a sigh of relief for the Conservatives. And, if you believe, as pollsters used to tell us, that all elections are “pocketbook”, or wallet and purse, elections, these figures should support what the polls are telling us, that the Tories will certainly emerge as the largest party on December 12, and could easily secure a comfortable majority.
These things are not perfect. I remember telling Michael, now Lord, Heseltine in the run-up to the 1997 election that a strong labour market and rising real wages did not guarantee victory. Labour lost in 1979 in spite of this, probably because of the “winter of discontent” of strike disruption, while the Tories succumbed to a Labour landslide in 1997 because of divisions on Europe, sleaze and memories of the 1992 “Black Wednesday” European exchange rate mechanism humiliation.
Is there anything to hold the Tories back this time? Boris Johnson does not offer voters huge reassurance and lacks a grasp of detail, or that may just be his style, but there are more public doubts over Jeremy Corbyn than there are about him. Johnson’s simple pitch of getting Brexit done may be inaccurate but will be effective with many voters.
The question is whether there is anything in the performance of the labour market to prevent it delivering for the Tories. Those of us who have lauded the job market’s performance in recent years – 3.5m net new jobs created since 2010 – have always had to contend with the criticism that, not only has this occurred against the backdrop of stagnant productivity, which continues, but that wages have been weak and many of the jobs created insecure.
A related strand of criticism of the labour market’s performance is the focus of a new Resolution Foundation report. The report, Feel Poor, Work More, takes a different approach to the employment “miracle” of recent years, with more jobs created than anybody thought possible.
Traditional explanations for the strength of the labour market do not work, argue the authors. Torsten Bell and Laura Gardiner. If it was all about Britain’s labour market flexibility, then nothing has really changed on that score since before the financial crisis. If it was all about demand from employers for labour, perhaps in lieu of investment, then you would have expected this to show through in a faster pace of wage increases than we have seen.
Some attribute the improvement to welfare reforms but the paper points out that this does not square with the slow, at times glacial, roll-out of universal credit, although welfare cuts may have made people more willing, and needing, to work.
Instead, they argue, the jobs boom is very significantly a labour supply boom. One aspect of this is well known. Changes in their state pension age have meant that many older women have had to work longer than they planned, and this is acknowledged by official statisticians as a contributory factor in the rise in the female employment rate.
The Resolution Foundation report goes further. It thinks that households have responded to the changed economic circumstances since the financial crisis by having to work more. This includes both partners in a couple now working, where previously only one did.
As the report puts it: “A deep recession in which wages fell dramatically, followed by an unprecedentedly sluggish earnings recovery, meant household incomes dropped far further than expected, and stayed lower. A rational response from households has been to shield family finances from the depth of such earnings reductions by increasing the number of workers or working more hours.”
The downward trend in working hours stopped a decade ago and collectively we are working 65m more hours a week than we would have done if we still had the 2008 employment rate today and the decline in the average working-week had continued.
What does this mean? People like me are always inclined to regard work as a good thing, and the more people that are in it, the better. But there is another way of looking at it, as the Resolution Foundation report highlights. Many people have been forced into work by circumstance, sometimes into multiple employment – holding down several insecure jobs at once – just as some older woman have been forced to work longer because of changes in their state pension age
For people in this situation, a near-record employment rate and the job market “miracle” of jobs created in recently years is not something to celebrate. It is reflection of their need, and in some cases their desperation.
There is other evidence that a low unemployment rate and rising real wages will not translate as smoothly in support for the government as it might have done in the past.
Consumers are not confident. Private new cars sales last month were down by 13.2% on a year earlier. The latest GfK consumer confidence barometer, for October, showed a drop of two points to -14. People are gloomier than they were in the immediate aftermath of the referendum, when confidence slumped, though not yet as gloomy as they were in 2012-13, when the economy was battered by the eurozone crisis, or during the crisis itself.
Confidence was riding much higher than this, however, when David Cameron secured a small majority for the Tories in 2015, and it was higher in 2017 when Theresa May failed to get the bigger majority she craved, or indeed any at all, in 2017. Something to ponder