Todayís figures from the Office for National Statistics (ONS) showing higher unemployment on both measures used by government, fewer job vacancies, and static underlying earnings growth confirm that the UK labour market cooled further at the start of 2006. There was however a welcome increase in the number of people in paid work, but this was due almost entirely to more temporary jobs and self-employment, which suggests that employers remain cautious about hiring, says the CIPDís Chief Economist John Philpott.
Unpacking employment growth
Dr Philpott comments:
ìDemand for labour remains subdued. Manufacturing is still shedding jobs at a steady rate and the level of vacancies has fallen in sectors that were until recently the mainstay of employment growth ñ hospitality and retail, health, education and public administration and construction. And even though 76,000 jobs were created in the three months to February, self-employment accounts for almost half the increase while three quarters of new jobs for employees were temporary. Concentrated hiring of temporary staff and self-employed contract staff is normally a sign that employers are uncertain about the state of the economy. The good news, however, is that employers in general still remain surprisingly reluctant to make staff redundant ñ though this could reverse if the expected economic recovery fails to materialise.
ìAs the CIPDís own quarterly surveys of employers, show hiring is likely to remain relatively modest for much of this year despite the expected economic recovery. As a result, net employment growth in 2006 is set to be closer to 100,000 than the 250,000 net growth enjoyed in recent years.î
Unemployment and welfare to work
Philpott continues:
ìWith demand for labour subdued against a background of continued growth in the number of people active in the economy, unemployment is set to remain on an upward path for the time being. Todayís substantial upward revision by the ONS of last monthís increase in claimant unemployment underlies the emerging degree of slack in the labour market. The Labour Force Survey (LFS) measure once again shows that women account for all of the increase in unemployment, although the LFS also suggests that this is due to more women looking for work rather than more women losing jobs (the number of women in work increased over the quarter).
ìThere is mixed news for the Government on its welfare to work objectives. The number of unemployed claimants in all the main New Deal target groups has continued to rise, indicating that welfare to work programmes are facing a tougher test. But there has been a welcome fall in the number of economically inactive people who describe themselves as long-term sick, which might be a sign that ministers are getting better at tackling the UKís mountain of Incapacity Benefit claims.î
Wage pressure and interest rates
Philpott adds:
ìOverall underlying wage inflation (excluding bonuses) remains subdued. Earnings growth is low and stable in private sector services and is now easing in the public sector too. Against a backdrop of rising unemployment it is evident that the labour market is not a threat to the governmentís CPI inflation target, and that wage bargaining has not been adversely affected by last yearís spike in fuel prices. Insofar as concern about the state of the labour market determines the Monetary Policy Committeeís next move on interest rates, these latest pay and jobs figures add strength to the case for a rate cut.î
Sharp rise in temporary jobs and self-employment as labour market continues to cool
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