UK jobs recovery drifts further away

The prospects of a full recovery in employment are weakening as the pace of job creation slows, according to new analysis from independent think tank the Resolution Foundation. Even under the most optimistic assumptions it will now be more than four years before the UK restores the employment rate of 2008—with central projections suggesting a recovery will take far longer. The figures temper the view that the UK jobs market is rebounding strongly, suggesting that it is now all but certain that the current jobs recovery will take longer than that following either the 1980s or 1990s recessions.

The new findings are based on calculations of the UK ‘jobs gap’, the number of jobs the UK needs to create in order to restore the 2008 employment rate. In 2008, 60.3 per cent of the UK adult population were in work, a figure that has now fallen to 58.5 per cent. To restore the 2008 rate today, the UK would need to create an extra 930,000 jobs. Far from closing over time, this figure is up from 830,000 in the last quarter of 2012. While jobs continue to be created, the pace of job creation is falling behind population growth. On the basis of population forecasts, employment needs to rise by around 50,000 a quarter just for the employment rate to stand still.

The tough figures are explained partly by the UK’s ageing workforce. Around a third of the current jobs gap is explained by the growing share of the workforce aged over 64. The population aged over 64 is growing twice as fast as the population aged 16-64.

The road to recovery

Looking forward, the figures mean that, even under the most optimistic assumptions, a recovery in employment will now need to wait until long into the next parliament. The new analysis reveals that:

• Even if the UK were to now repeat the fastest sustainable period of job creation seen in the last 20 years—the jobs boom from 1994 to 1999—the jobs gap will not be closed until mid-2017.  Job creation at this level would be highly surprising: the period from 1994-1999 saw GDP growth average 3.5 per cent a year versus the 2.2 per cent now forecast by the OBR for 2012-2017. These figures take no account of planned public sector jobs cuts.
• If the UK instead follows a more realistic (but still optimistic) path, and private sector jobs growth repeats the late 1990s jobs boom but public sector job cuts proceed on the scale forecast by the OBR, then the jobs gap will hardly narrow at all and will remain at 890,000 in 2018. This would mark an unprecedentedly sustained drop in the employment rate.

This second scenario is broadly in line with latest projections from the Office of Budgetary Responsibility. Under OBR projections for the overall employment rate, the jobs gap is set to widen and in 2018 the UK will still be 770,000 jobs short of restoring the 2008 employment rate.

Comparison with past recessions 

The new analysis, which also compares the current downturn to past recessions, tempers the broad consensus that the UK is seeing an historically strong jobs recovery. While the fall in employment has been far shallower this time around,  the jobs gap has barely narrowed since late 2009 and the jobs recovery now looks likely to be slower than it was after either the early 1980s or 1990s recessions. In both previous recessions the jobs recovery took between 9 and 10 years. Only under the most optimistic scenario will today’s recovery be quicker than this.

James Plunkett, Director of Policy at the Resolution Foundation, said:

“Full employment was once a guiding aspiration of economic policy but now it risks becoming yesterday’s dream.  Even the much less ambitious hope of restoring the pre-crisis employment rate is starting to wane.

While unemployment is still surprisingly low given the fall in output seem in recent years, this is just one way of looking at the labour market and it breeds a real risk of complacency. At least as important is the proportion of the population who are working and the poor performance we’ve seen on this measure recently reveals how tough the jobs recovery is going to be.

We urgently need a debate about what full employment would look like in the decade ahead given our ageing society and expectations about women working.  Our idea of full employment can’t be based on outdated ideas about working lives and family roles.”

ENDS