Tuesday, 24 January 2012

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Underpinning this conclusion was an incisive analysis of sectoral performance based on, as yet unpublished, analysis by Bank of England economists.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.

Monday, 23 January 2012

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 20th 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.

Thursday, 19 January 2012

January 2012 Labour Market Statistics Briefing

On the 18th 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.