We priced ourselves into jobs last time. Can it happen again? 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. We are just coming up to the end of the first two weeks of September and you would have to say that the autumn has not started too well. On Covid-19, it has been a case of one step forward – the overwhelming majority of schools returning – and at least one back; new national restrictions on people gathering, the so-called rule of six, that could be in place for many months. These lurches do nothing for confidence. One minute the talk is of a return to work, the next is the threat of a national lockdown – something I thought had been ruled out by the
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We priced ourselves into jobs last time. Can it happen again?
My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.
We are just coming up to the end of the first two weeks of September and you would have to say that the autumn has not started too well. On Covid-19, it has been a case of one step forward – the overwhelming majority of schools returning – and at least one back; new national restrictions on people gathering, the so-called rule of six, that could be in place for many months.
These lurches do nothing for confidence. One minute the talk is of a return to work, the next is the threat of a national lockdown – something I thought had been ruled out by the preference for local responses – if these restrictions do not work.
One minute the chancellor is musing openly about how he might go about the task of repairing the public finances, the next Downing Street is talking of a “moonshot” of 10m tests a day, which could cost £100bn. The only comfort for the Treasury is that there is about as much change of this non-existent technology delivering as there is of Britain landing a man or woman on the moon next year.
It reminds me, painfully, of how non-existent technology was going to solve the problem of the Irish border, and the state of the Brexit negotiations and the government’s deliberate breaking of international law is another sorry start to the autumn. It seems like a long time since we could have our cake and eat it and the German car manufacturers would appear on the horizon and come to our rescue. They won’t. The head of the BDI, which represents German industry, said that the British government “is losing credibility on a huge scale”. I will write about the Brexit mess, but not just yet.
Instead, amid all this gloom, I wanted to try to offer just a tiny glimpse of optimism. A sharp rise in unemployment later in the autumn and over the winter would compound what the government’s chief medical officer, Professor Chris Whitty, has predicted will be a “difficult” few months for Covid-19.
It is quite hard to be optimistic about unemployment. I have written before that keeping the total below 3m (from 1.34m now) would be an achievement. Gordon Brown, the former chancellor and prime minister, has warned of a “tsunami” of mass unemployment, said that pleas for help are falling on “deaf ears” at 10 and 11 Downing Street, and urged a package of measures
The Office for National Statistics will provide an update on Tuesday, though covering a period under furlough, which has held down recorded unemployment. Rishi Sunak and Boris Johnson have both ruled out an extension of the furlough scheme, though the Johnson premiership has characterised by U-turns.
The House of Commons Treasury committee said on Friday that the chancellor could carefully consider a targeted extension of the furlough scheme. It also warned that his job retention bonus, paying employers £1,000 for every furloughed employee they keep on until the end of January, was not effectively targeted and unlikely to be good value for money.
So where is the glimpse of optimism I promised? It comes in two parts. The first, while it may not be enough when set against the tsunami to come, is that we are seeing some job creation announcements amid the gloom. We know which sectors are suffering, notably city centre hospitality, transport and travel, and so on, and tomorrow’s restrictions will not help.
Other sectors are, however, doing well, and announcing new jobs. Tesco has announced 16,000 new permanent jobs, Morrisons that it will convert thousands of the 45,000 temporary jobs it has created since the coronavirus crisis hit to permanent ones. Iceland, the store not the country, is creating 3,000 jobs. Amazon, a clear online beneficiary, will create 7,000 more permanent jobs and 20,000 temporary ones.
The Recruitment and Employment Confederation (REC), which represents the recruitment industry, reported a sharp rise in the hiring of temporary staff last month, alongside an increase in permanent placements, which it suggested could mark a turning point for the job market.
“A return to growth in permanent placements and temporary billings is good news – though it is also expected, given we are comparing activity now with the lockdown,” said Neil Carberry, REC’s chief executive. “Temporary work is critical in any recovery - businesses turn to temps to help them ramp up and meet demand while the future looks uncertain. At the same time, it enables people to find work quickly. Past recessions show that temporary work bounces back more quickly – it is one of our job market’s biggest strengths and that’s really showing now.”
Figures from Eurostat, the EU’s statistical agency, showed that Britain’s labour market has so far held up well. Most countries have furlough schemes, or equivalents, but the average fall in EU employment in the second quarter was 2.7%, compared with 0.7% in the UK. Compared with a year earlier, UK employment rose by 0.3%, while the EU average was down by 2.9%.
There are, then, some stirrings in the job market. The second element is pay. In the aftermath of the global financial crisis just over a decade ago, many people feared a huge rise in unemployment. I won’t name names but one prominent economist predicted 5m unemployment. The post-crisis peak was actually 2.71m.
An important reason for that was pay restraint, which started during the crisis with pay freezes and cuts and which continued with a much lower level of wage and salary increases after it. Collectively, people priced themselves into jobs.
In the eight years leading up to the crisis, average earnings growth averaged 4.2% a year. In the eight years after recovery from the crisis began, it averaged 1.8%. This lower post-crisis pay growth was, of course, accompanied by stagnant productivity.
The question is whether something similar is happening again. Average earnings growth has turned negative. Total pay in the second quarter was down by 1.2% on a year earlier, while regular pay showed a 0.2% fall. Some of that, perhaps much of it, is a furlough effect. Furloughed workers had 80% of their wages paid by the government, and some employers did not top them up to 100%.
But it probably goes beyond this. The REC survey reported a drop in starting salaries and temporary workers’ pay for the fifth month in a row in August. People want work, the survey reported that the rise in candidate availability was the second sharpest on record, and are prepared to accept lower salaries to do so. The sharpest increase, another throwback to the last crisis, was in December 2008.
All recessions and recoveries are different, and this one is highly unusual. After the financial crisis, workers were able to price themselves into jobs because those jobs existed and were expanding, particularly in sectors like hospitality. This time, the risk is that not enough of the jobs will be there.
But the experience after the financial crisis is a reminder that it is easy to get too gloomy about unemployment. This will be a test for Britain’s labour market flexibility and the ability of employment to adapt to new circumstances. Let us hope that it can pass it.