By Michael Baxter 3 Feb 2010 [0 Comments | 309 views]
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Jobs are in the news again today. We are on the “long road to recovery” says one report. We haven’t seen the worst yet says another. And to make matters worse, both reports are from highly respected bodies too. Who is right?
This is what a report from KPMG and the Recruitment & Employment Confederation found. Well let’s use the words of Kevin Green, chief executive at the Confederation, he said: “The labour market is out of intensive care but it is still in a fragile state. While employers are hiring more now than at any other time in the last year, the recovery is tentative and must not be put at risk by taxes or regulatory changes.”
Or here are the comments from Bernard Brown of KPMG, “The UK jobs market is continuing its journey back to health. Placements of permanent and temporary jobs have been rising again in January although at a slower pace than a month before, a reminder that the road to recovery will be bumpy.”
Okay, it is not a ringing endorsement of the labour market, but at least it sees things getting better.
And don’t forget, the unemployment rate didn’t rise anywhere near as fast as were expecting anyway. That’s why house prices are recovering, continues the argument.
But not so fast, in its latest economic report, the National Institute of Economic and Social Research (NIESR) painted an altogether more sorry tale.
NIESR says, “Unemployment has risen by less than seemed likely given the severity of the downturn. But employment has fallen by more than expected once we take account of the adjustment of real wages and average hours worked.”
It continues,“The unemployment rate in the UK has not risen as sharply as in the US, but this reflects a decline in real wages in 2008-2009. After taking account of the decline in output, the change in average hours worked and developments in real wages, the UK labour market has performed slightly worse than expected, and slightly worse than in the other G7 economies.”
In other words, the surprisingly low rises in unemployment was paid for by those who managed to hang onto their job working less hours and through their wages increasing by less than inflation.
Looking at it from one point, things don’t look so pretty. The bulls, especially property bulls, say the surprising strength of the labour market is why house prices have begun to rise and why they will continue to rise, and in turn why the economy will improve. But actually, if you look at the data the way NISER has, you find that taking into account hours worked, the employment situation is even worse than expected. Combine this with falling real wages, and our affordability has got worse, not better as some claim.
NIESR goes on to predict a rise in unemployment this year. It says: “The unemployment rate stabilised in the second half of 2009. This will prove to be a hiatus rather than a turning-point and we expect unemployment to carry on rising over the next two years, from 7.8 per cent in late 2009 to 9.2 per cent in 2011. The jobless count will peak at 2.9 million in the third quarter of 2011.”
NIESR also predicted a lacklustre year for the UK growing by 1.1 per cent this year and by 2 per cent next
Ummmm. So that’s a pretty pessimistic take on the UK. Is it right? There are no shortages of economists who share NIESR’s pessimistic stance.
The big difference, however, between NIESR’s pessimism and the more optimistic forecasts from the likes of Goldman Sachs, who expect the UK to boom this year, lies with exports.
Those expecting the British consumer to lead a recovery of any sorts are kidding themselves. The government, too, has clearly run out of puff. NIESR has reflected these sad truths in its forecast. But NIESR bases its forecast on data not supposition, and as such has not factored in the effect of a cheaper pound driving exports.
But that’s the snag with economic forecasts. NIESR, along with everyone else totally failed to predict the economic crisis. They based their forecasts on data. There was little intuition in their report. Intuition is not scientific, so from an academic point of view their forecasts are good, very good. It is just that if you apply non–scientific intuition, you may well have ended up getting closer to the truth.
