Mind the jobs gap

The latest labour market data obscures the fact that job creation is failing to keep up with population growth, and that whole regions are being left out of any economic recovery

Many UK politicians and commentators have highlighted that the UK labour market has performed remarkably well despite the weakness of the economic recovery following the 2008 crash. They point to the fact that overall levels of employment have now surpassed their pre-recession peak, with the latest official labour market statistics released yesterday revealing that there are 29.8 million people working in the UK, over 200,000 more than in early 2008, and up 69,000 on the previous quarter.

However, as previous work by the Resolution Foundation has highlighted, focusing simply on the raw number of people in work is very misleading, since it takes no account of the changes to the UK population over the period in question. Rather than the absolute number of jobs, it is the proportion of the population in work that is the key economic indicator of the health of the labour market.

So while the recent trends are encouraging –some job creation is better than none – the employment rate still remains significantly below its pre-recession level in early 2008. Yesterday’s labour market stats show the employment rate for those aged from 16 to 64 for April to June 2013 was 71.5%, up 0.1 percentage points from January to March 2013. This was mirrored in a similar rise in the proportion of all adults (i.e. everyone aged 16 and over) in work, which was 58.5% in April to June 2013. This means that to return the UK to its pre-recession employment rate of 60.3 per would require the creation of 919,000 new jobs. This ‘jobs gap’ has emerged, despite increasing numbers of people in work, because the number of new jobs created has not kept up with population growth.

Furthermore, these headline figures hide a high degree of regional variation. Our new analysis based on the latest data shows that only in London has the share of the adult population which is employed returned to close to the levels seen in early 2008. In other parts of the country, the South West, the East Midlands and Northern Ireland, the employment rate has fallen by more than 2.5 per cent since 2008. The hardest-hit area has been the South West where 58.5 per cent of the adult population is now employed – down from 61.4 per cent in early 2008. This is closely followed by the East Midlands, which has seen a 2.8 per cent fall to 57.7 per cent, and Northern Ireland where the employment rate has fallen 2.7 per cent to 55.8 per cent.

In contrast, the strongest performer has been London, which is closest to closing its job gap with an employment rate less than one per cent down from its 2008 level of 62.2 per cent. The next best performance is in Wales where the gap is just 1.2 per cent. The lowest overall rate of employment is in the North East, where less than 54 per cent of the working-age population is employed – down 1.8 per cent since 2008.

In summary, it is clear that the emphasis placed on raw numbers of jobs created is at best partial and at worst simply misleading. The number of new jobs created as the labour market recovered from the 2008 recession has not kept up with population growth, resulting in a significant ‘jobs gap’. Furthermore, our new analysis reveals considerable regional variation, with some areas in danger of being left behind.

The bottom line is that, as we monitor the economy’s recovery from recession, it is crucial that the appropriate labour market indicators are used – not just the employment rate, but also other key indicators such as median earnings and measures of job security that also have a strong bearing on family living standards. In doing so, it is also crucial that we assess the degree to which the benefits of growth are shared, both across the income scale and geographically. Any ‘recovery’ that leaves many low to middle income households, or even entire regions, left behind will feel very hollow indeed.

This post originally appeared on Public Finance