Break even moment for employment masks regional imbalance

Today’s employment statistics mark an important point on the long road to recovery from the historically deep downturn we have suffered. After over six years, the working age employment rate has returned to its pre-recession level of 73.0 per cent (though it is still below the February 2005 peak of 73.2 per cent). We have finally recovered the ground lost in terms of employment, and even as wage data continues to disappoint, this landmark should be heralded as very good news.

Some may be confused that we are celebrating this break-even moment now. After all, we frequently here that our economy is one million-plus jobs stronger than it was at the onset of the downturn. Therefore have we not arrived a bit late to the party?

It is true the number of people in work surpassed its pre-recession level nearly two years ago, back in November 2012. But measuring the strength of the labour market in this way is misleading. The simple reason for this is the UK has been getting bigger since the recession began, with the result that some of the rise in employment is just down to an expanding working age population. Charting the recovery by instead looking at the employment rate therefore provides a more accurate picture of whether and when lost ground has been made up.

We might want to hold off popping the champagne corks though. While today brings good news, with the corner being turned at the national level, this masks a very uneven picture across regions and nations.  Half of the regions and nations of the UK still have lower employment rates than they did at the onset of recession, for example the 16-64 employment rate in the South East is 2 per cent lower than it was in May 2008, while in the West Midlands it is 1.9 per cent lower. We express the ground left to be made up in these areas in terms of the ‘jobs gap’ – the additional workers required for the employment rate to get back to where it was in 2008, accounting for population growth. As of August 2014, the largest ‘jobs gap’ is in the South East, where an additional 83,000 workers are needed for the 16-64 employment rate to get back to pre-recession levels. This is followed by the West Midlands, which is still carrying a ‘jobs gap’ of 47,000. By contrast London, which has had the strongest recovery from recession, closed its ‘jobs gap’ in November last year and now enjoys an employment rate 2.3 per cent above its pre-recession level – equivalent to 94,000 extra jobs.

Of those parts of the country still carrying ‘jobs gaps’, particularly concerning are three areas which also have employment rates consistently below the national average – the West Midlands, Wales and Northern Ireland. These areas have suffered the double whammy of weaker labour markets at the onset of recession, and weaker recoveries. Contrast to the South East – although it has the largest overall ‘jobs gap’, it retains a much higher employment rate than the UK as a whole, at 76.5 per cent. The chart below and a new interactive map from the Resolution Foundation show these contrasting fortunes of different parts of the country in more detail, providing a balanced perspective on both post-recession employment performance and the overall strength of the jobs market in each region and nation.

While ‘jobs gaps’ remain in half of regions and nations, the pace of recovery has picked up across the country over the last two years, with everywhere expect Wales experiencing employment rate growth. The continued strength of the recovery will depend on ensuring that this progress continues, so that those areas still lagging behind make up the lost ground as quickly as possible. These are the next landmarks we will be looking for, particularly as closing ‘jobs gaps’ once and for all should start to drive much-needed growth in pay.