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Jobless and Workforce Data see Record Rises
October 2006
Unemployment has hit a five-year high, according to official figures published yesterday, but the number of people in employment also rose – to an all time high of 29.02m “Curiosuser and curiouser” as Alice in Wonderland might have said had she been in receipt of recent labour market data.
The parallel growth in both employment and unemployment has left labour market experts scratching their heads for previous historical examples “I can’t immediately recall another period when this has happened, which suggests that it is unusual” said Alan Manning, professor of economics at the London School of Economics.
John Philpott, chief economist at the Chartered Institute of Personnel and Development, also cannot think of a time when the two usually opposing forces have so persistently acted in unison.
Most experts agree that the labour force has had a “supply shock” principally due to large numbers of migrants from east Europe seeking work in Britain after joining the European Union. This has expanded the labour force substantially and, as the Bank of England has said, may have contributed in keeping wages down.
The latest figures showed average earnings rising by a less than expected 4.2% in the three months to August, down from 4.4% in the three months to July. Excluding bonuses, average earnings growth fell to 3.6 from 3.7% - the lowest rate since January 2004.
In the three months to August, the workforce was 1.8% larger than in the same period of 2006, according to the Office for National Statistics, compared with a 10 year average of 0.7% annual growth.
In 2004, there was an inflow of 267,000 migrants 24% more than in the previous year, according to the Organisation for Economic Co-operation and Development – an inflow unprecendented in recent British history. Strong immigration has helped to explain the 256,000 increase in employment to just 29m although there are no figures on exactly the proportion accounted for by migrants.
Mr Philpott does not believe that the increase in unemployment signals weakness in the economy – quite the opposite. As he points out, unemployment usually occurs because of job cuts, but the economy is expanding and jobs continue to be created.
However, the increase in the workforce, is not all down to migrants. It is also a product of the government’s success in getting more long term sick people to enter the workforce as well a steady flow of older people re-entering the jobs market.
This expansion means, said Mr Philpott that “maybe we have to get used to higher unemployment than in the past”
The number of people claiming unemployment benefit was 962,000 last month and was last higher in December 2001. The unemployment rate climbed to 5.5% - up buy a reasonably sharp 0.8% points on this year.
The problem is that the large increase in new entrants to the labour market are making it difficult to take a clear view on its direction, as the recent debate on the Bank’s monetary policy committee demonstrates.
“Is the labour market strong” Or is it weak ?” asked Professor Manning. “That uncertainty feeds into the uncertainty about wages. Will higher employment lead to higher wages, or will wage growth be subdued because of rising unemployment”.
It is for the MPC to make sense of this Alice in Wonderland world and getting it wrong could lead to serious policy mistakes says Prof. Manning.
FINANCIAL TIMES
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