Posen addresses the ‘productivity gap’ at Nottingham Business School

Bank of England Monetary Policy Committee member Adam Posen spoke at Nottingham Business School last night. The main focus of his presentation was to consider whether the recent recession and, as yet, painfully slow recovery provides evidence of a fundamental adjustment (down) to the trajectory of UK productivity growth. The good news was that he concluded ‘no’. The bad news was that we can expect to see unemployment continuing to rise for some time to come.

Underpinning this conclusion was an incisive analysis of sectoral performance based on, as yet unpublished, analysis by Bank of England economists. The main thrust of this analysis was to suggest that, in the wake of recession, a number of sectors are performing significantly worse (in terms of productivity) than the economy in general – the ‘dawdlers’. These dawdling sectors include financial services, professional and scientific services and, in his view, the highly unionised transport and logistics sector. In these 3 cases Posen suggested that employment had yet to fall to a level commensurate with reduced output – hence his prognosis on unemployment.  He would not be drawn on which sectors were out-performing the norm – although there were hints elsewhere in his speech that export orientated manufacturers are worth watching.

He did not address regional differentials in economic performance, but given what we know about the uneven distribution of sectors across the UK regions, this analysis could have significant regional implications. We will post a link to Posen’s presentation as soon as it is published by the Bank of England.

Does increased self-employment signify ‘Start-Up’ Britain or is it a cause for concern?

In our analysis of the monthly Labour Market Statistics (see 20^th December’s blog), we have questioned whether the Government is right to celebrate the recent rapid growth in self-employment, arguing that this may indicate “necessity entrepreneurship”.  This is where individuals become self-employed as a consequence of not being able to find employment – often in lower skilled activities, with relatively low and variable earnings, lacking many of the legal benefits enjoyed by employees (the minimum wage, holiday and sickness pay etc.).

A comment piece by John Harris in today’s Guardian drew useful attention to recent analysis by the Chartered Institute of Personnel and Development (CIPD) on reasons to be concerned over the true nature of the rise in self-employment.  By comparing the profile of the self-employed in a recent quarter of the Labour Force Survey (August-October 2011) to previous time periods, the authors found that the ‘newly self-employed’ were more likely to be working less than 30 hours a week and increasingly more likely to be working in unskilled, elementary activities (increasing by 29% since 2008) or personal service occupations (increasing by 19%).  Conversely, self-employed skilled tradesman have made up a much smaller proportion of the net increase (increasing by only 2% since 2008) and sectors historically associated with large proportions of self-employment have experienced a decrease in their self-employed workforce (with self-employees in construction shrinking by 3% since 2008).

Past analysis of the Global Entrepreneurship Monitor (GEM) has identified certain characteristics associated with entrepreneurs, including a higher level of skill or education, access to capital and previous experience of employment – with a high proportion of entrepreneurs being older (35-44 years old).  This suggests that self-employment is not an ideal choice for everyone.

This casts doubt on whether policy makers are wise to view self-employment as an objective in its own right, and as a status that is always somehow more desirable than employment.  This is particularly concerning when some commentators are suggesting that Government should provide start-up loans for young people (similar to loans for tuition feeds) to go into self-employment, in order to reduce youth unemployment.  Self-employment should clearly be supported when it is undertaken to pursue an idea or an opportunity, but it may result in individuals finding themselves in more vulnerable circumstances if it becomes a necessity or the only alternative to unemployment.

January 2012 Labour Market Statistics Briefing

On the 18^th of January, the Office for National Statistics published the Labour Market Statistics for January 2012, which covers Labour Force Survey data for the period September-November 2011 and data on Jobseekers’ Allowance claimants for December 2011.  This data indicated a further fall in the employment rate and a higher than expected increase in unemployment, with the number of people estimated to be unemployed reaching 2.7 million adults – up 118,000 on the previous quarter - the highest number since 1994. 

In the national news there was considerable emphasis on the continued increase in the unemployment of young people, aged 16-24, which has increased by 52,000 on the previous quarter to 1.04 million, with sources such as the BBC, Guardian and Channel 4 News speculating about a ‘lost generation’ – unemployed young people who have never had experience of paid work, and will therefore face increasing barriers accessing work in the future.   In responses from the Government (e.g. employment minister Chris Grayling MP) and from some media commentators (e.g. Channel 4 News’ economics editor, Faisal Islam) there was also optimistic speculation that, because month-on-month increases in the claimant count appears to be slowing, this may point to future improvement in the wider quarterly labour market statistics – and that the ‘end may be in sight’ for the current trend of worsening employment conditions.  Unfortunately, it is our view that such optimism may be premature – given corresponding monthly indicators of demand for labour, such as vacancies, continue to worsen.  Vacancies advertised in Jobcentres in the three months to December 2011 down 2,000 on the previous quarter and 18,000 on the year.  This is also in-line with a range of concerning business survey reports, showing subdued business activity, confidence and consumer spending.

More locally, BBC East Midlands today presented the fall in employment and rise in unemployment as an unexpected end to the region ’bucking the trend’ – citing previous Labour Market Statistics releases that suggested that conditions in the East Midlands had been more stable than nationally, even with some indication of increases in employment in previous quarters.  Again, our view is unfortunately somewhat less positive.  The more reliable 12-month-rolling Labour Force Survey results (which are published for the East Midlands 4 times a year, each containing 12 months’ worth of data) suggest that the East Midlands did not experience a comparable level of recovery in terms of employment and unemployment through 2010 compared to the national picture -  so the region’s relative stability through 2011 (up until the latest release) has to be seen in the light of weaker performance in the previous year.

Source: ONS Crown Copyright, 'Labour Market Statistics: January 2012', Statistical Bulletin, 18th January 2012.

Derby, Derbyshire, Nottingham and Nottinghamshire (D2N2) Capacity Fund Research Reports Published

http://www.d2n2lep.org/document-library.aspx 

The ‘D2N2’ Local Enterprise Partnership have now published a collection of research reports produced by the Economic Strategy Research Bureau as part of the Department for Business, Innovation & Skills LEP Capacity Fund.  Work from the main research stage is complete – which is now informing a process of strategic planning and engagement between the LEP Board and businesses in key sectors.

We’ll be blogging on the policy implications of the key findings as they relate to skills, enterprise and the impacts of the recession (which have been particularly marked in terms of rising unemployment in Nottingham City) over the next couple of weeks, but in the meantime the individual reports are as follows:

Report 1: Executive Summary – which includes the rationale for the industrial sectors recommended for focus to the LEP Board:

http://www.d2n2lep.org/Userfiles/Report%201-%20D2N2%20Evidence%20Summary%20FINAL%20Dec%202011.pdf

Report 2: Policy Context and Observations from the Evidence -  which includes a detailed overview of all the main national policy developments – up to the City Deal announcements of the last few weeks – as they relate to LEPs and economic development more widely, followed by an attempt to relate the key findings from the evidence to interventions available to LEP partners:

http://www.d2n2lep.org/Userfiles/Report%202%20-%20D2N2%20Conclusions%20and%20Observations%20FINAL%20Dec%202011.pdf

Report 3: The D2N2 Economy – using official and data and other sources, including the Experian economic model held by NBS, to assess the economy of the local area, key sectors – identifying relative productivity advantages – and exploring the extent of enterprise and innovation activity.

http://www.d2n2lep.org/Userfiles/Report%203%20-%20D2N2%20Economy%20FINAL%20Dec%202011.pdf

Report 4: Employment and Skills -  again using official data and other sources, including the National Employer Skills Survey, to compare and contrast measures of skills supply and demand, and discuss the impacts of recession on the area’ labour market.

http://www.d2n2lep.org/Userfiles/Report%204%20-%20D2N2%20Employment%20&%20Skills%20FINAL%20Dec%202011.pdf 

 

Report 5: Education and Training – particularly important for LEP partners, given the significant changes in this area under the Coalition Government – moving towards a more market driven system based on ‘learner choice’ – which, it is hoped, will be more responsive to the needs of employers than the previous Government’s more interventionist approach.  This also looks at experiences of recent graduates from Derby, Nottingham and Nottingham Trent Universities, employer perceptions of education leavers, and survey evidence on the influence of advice and guidance on learner choices.

http://www.d2n2lep.org/Userfiles/Report%205%20-%20D2N2%20Education%20and%20Training%20FINAL%20Dec%202011.pdf

Report 6: Review of D2N2 Research and Strategy and Gap Analysis -  a literature review of a wide selection of strategies, action plans and research documents produced by the City and County Councils, the Chamber of Commerce and other LEP partners to inform the focus of the above reports.

http://www.d2n2lep.org/Userfiles/Report%206%20-%20D2N2_LitReview%20FINAL%20Dec%202011.pdf

Have a great Christmas and New Year,

All the best,

Chris

Labour Market Statistics December 2011

(this post is a copy of document sent to contacts within an hour of statistics' publication -a briefing of January's LMS will be available on this site by 10.30am on 18th January 2012 - the day of the January LMS publication)

On Wednesday the 14th of December, the Office for National Statistics published the Labour Market Statistics (LMS) for December, which covers Labour Force Survey data for the period August-October 2011.  This confirms the expectations of most commentators that employment rates would again fall and unemployment would increase.   Youth unemployment (16-24 year olds) has also increased, reaching 1.03 million, at the highest level since comparable records began.

Employment

In the UK as a whole during the period August-October 2011, 70.3% of adults (aged 16-64) were in employment, which is 0.2 percentage points lower than the previous quarter (May-July 2011).  This is equivalent to 29.1 million adults in employment, 63,000 lower than the previous quarter.

The number of employees fell by 252,000 compared to the previous quarter (to reach 25 million).   The number of people who are self-employed increased by 166,000 (to reach 4 million).  This is the highest number of self-employed people since comparable records began (in 1992).

A significant proportion of the increase in self-employment is likely to be due to necessity – i.e. individuals starting their own businesses having been unable to find suitable employment.  This can be a concern for policy makers, as research has shown that people moving into self-employment in times of labour  market difficulty can often ‘trade down’ on their skills to activities that may be associated with relatively low levels of pay.

Public sector employment fell significantly, by 67,000 between June and September to reach 6 million, the lowest figure since September 2003.  Conversely, private sector employment increased by only 5,000 over the quarter, to reach 23 million.

Unemployment

The unemployment rate, based on the International Labour Organisation (ILO) definition[1], for August -October was 8.3% of economically active adults, which was 0.4 percentage points higher than the previous quarter.  This is equivalent to a total of 2.6 million adults unemployed, an increase of 128,000 on the previous quarter.  The number of unemployed adults is the highest it has been since January 1996.

Youth Unemployment

There has been particular concern about youth unemployment (16-24 year olds) over recent months, with the number exceeding a record 1 million according to last month’s LMS.   It has now reached 1.03 million, or 22% of economically active 16-24 year olds.  Compared to the previous quarter (May-July 2011) this has increased by 1.2 percentage points and 54,000 individuals.  Youth unemployment is at its highest level and rate since comparable records began in 1992.

Job Seekers’ Allowance Claimants

The proportion of Job Seekers Allowance (JSA) claimants in the UK in November 2011 was 5.0% of adults aged 16 and over, which is unchanged from the previous month but 0.4 percentage points higher than the same period a year earlier.  This is equivalent to 1.6 million adults claiming JSA across the UK, up 3,000 from the previous month and 138,600 on the same period a year earlier.

The claimant count measure of unemployment is more timely than the ILO-based measure described above and is also not affected by issues related to survey sample size – as it is a count of claimants drawn from Jobcentre Plus management data.  It is generally lower than the ILO-based measure because not all unemployed people claim JSA, and not all are eligible to claim.  However, it can be affected by changes to the overall benefits system.  Recently changes to Incapacity Benefits (IB) have meant that some people declared ineligible for IB will have started to claim JSA, increasing the claimant count.  However, so far the effect of this development on the claimant count has been very small.

Redundancies and Vacancies

In the three months to October 2011, 161,000 people had become redundant, which is lower than the previous quarter (which included many public sector redundancies implemented at the start of the 2011-2012 financial year) but 2,000 higher than the same period a year earlier.

The number of vacancies (advertised through Jobcentre Plus) has fallen, to 455,000 in the period September-November 2011, which is 8,000 lower than in the previous quarter.  Given the relatively high level of unemployment, this now means that there are 5.7 ILO unemployed adults to every one vacancy, up from 5.5 in the previous quarter.

Earnings and Hours Worked

For Great Britain (which excludes Northern Ireland), the annual growth rate for total pay (including bonuses) fell by 0.3 percentage points on the previous quarter to reach 2% in August-October 2011. The whole economy earnings annual growth rate for regular pay (excluding bonuses) increased by  0.1 percentage points to reach 1.8% in the three months to October.

Estimates of total hours worked show that, whilst fewer people are in employment and earnings growth continues to remain modest, the average number of hours worked by individuals in employment has increased by 0.2 hours compared to the previous quarter, to 31.6 hours a week in the period August -October 2011.

Key Regional and Local Developments

·         Most English regions (with the exceptions of the North West, West Midlands and South West) experienced a fall in employment in August-October 2011 compared to the previous quarter.   The North East and Yorkshire & the Humber both experienced the largest falls in employment rates, by 0.8 percentage points on the previous quarter to 65.1% and 67.7% respectively.  Yorkshire & the Humber also saw the largest fall in the number of adults in employment, by 27,000, followed by the East Midlands, where the number in employment fell by 26,000 on the previous quarter.

·         In the East Midlands, the latest employment rate is 71.7% of adults aged 16-64, which is higher than the national average (70.3%).  This fell by 0.3 percentage points on the previous quarter but represents an increase of 1 percentage point on the same period a year earlier.

·         Unemployment has increased in all regions except for the East Midlands and the South West.  The ILO rate increased most in the East of England compared to the previous quarter, by 0.8 percentage points to 7.2% - although this remains low compared to the regions in the north and midlands.  The highest unemployment rate is in the North East, at 11.7% of economically active adults.

·         In the East Midlands, unemployment fell slightly compared to the previous quarter, by 0.1 percentage points to 7.9%, which is 0.4 percentage points lower than the average for the UK.

·        Claimant count rates have remained stable in many East Midlands local areas over the last two months, having increased for much of 2011.  However, it also shows that disparities between the areas with the highest unemployment, notably Nottingham and Leicester, and the areas with low unemployment  (such as Rutland and Leicestershire) have widened. 

·         In November 2011, Nottingham had the highest claimant count rate in the East Midlands, at 6.1% of residents, followed by Leicester at 5.8%.  This has changed little in both cases over the last two months, but is up significantly on the same period a year earlier.  In Nottingham, 13,606 individuals were claiming JSA in November 2011.  

[1] Defined as those who are out of work but available for, and actively looking for, employment within a set period.  This is expressed as the proportion of ‘economically active’ (employed plus unemployed) adults.

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Welcome to the ESRB Blog

Hi,
Since being established at Nottingham Business School in August this year, we're now in a position to start posting commentary and analysis on economic, social and labour market issues.  We'll be blogging regularly in the future - starting with monthly commentary on each release of employment/unemployment figures from the ONS,

Hope you keep in touch,

Chris Lawton

Research Fellow, ESRB