Mass under-employment

Today’s figures showed that unemployment fell slightly in the third quarter, pushing the unemployment rate down to 3.8%, its lowest since 1974. This, however, vastly under-estimates the amount of slack in the labour market.

My chart shows the point. It shows that, in addition to the 1.3m officially unemployed there are also almost 1.9m who are out of the labour force who would like a job. We know this is no idle preference; labour market flows data show that, in Q3, 547,000 people moved from inactivity into employment (and 574,000 in the opposite direction).

But there’s much more. Other data today show that, in addition to these, there are 3.3m people who are under-employed – who are working fewer hours than they’d like.

Put together, this adds up to 6.45 million people – 695,000 more that at the low-point for labour market slack seen as far back as 2005.

A big reason why there is so much underemployment is that wages aren’t high enough to provide a decent income without long hours; this is also why more people in the same household are working. As the Resolution Foundation says:

Why are so many of us working? Because we’re a lot poorer than we expected to be

From this perspective, one fact becomes explicable – that real wages are still lower than they were in 2007*, and that nominal wage growth has slipped back slightly recently, to 3.6% in Q3 after 3.9% in the three months to July.

This is because the under-employed put significant downward pressure on wages. Put yourself in a boss’s shoes. If the labour market is really tight, you’ll have to raise pay to get people to work more. But if you already have an employee who wants longer hours, you can get them to work more instead. You don’t need to raise pay.

Of course, the under-employed are not the only ones unhappy with their hours. ONS data show that there are 3.4 million people who’d like fewer hours even if this means low pay: this suffices to refute the silly idea that you can think of the labour market in terms of a “representative agent”.

Such over-employment is, however, also a sign of labour market slack. It tells us that there aren’t enough jobs for people to find one with hours that suit them.

If we add together the unemployed, under-employed and over-employed we get almost ten million people who are unhappy with the world of work. That’s almost a quarter of the working age population. And this is before we mention those who are over-qualified for the jobs they are doing or who are in what David Graeber calls bullshit jobs.

This is surely a colossal systemic failure. In his book Not Working, David Blanchflower says one solution to this is for macro policy to put the pedal to the metal – to be much more expansionary. But I wonder: is this sufficient?

* OK, depending on how you measure price inflation.

Comments

[Chris Purnell]

Hidden unemployment is laughingly called a 'pool of labour' where employers can go fishing for cheap and cowed workers. No wonder this 'full' employment situation hasn't produced an up-tick in wages.

[Mark]

At the bottom, a lot of this is about the perverse incentives in the benefits system discouraging people from doing more than 16 or 30 hours. At the top, a mix of the pensions Lifetime Allowance coming down in stages and good old fashioned rent-seeking and perverse incentives in certain industries and professions (a gifted City trader becomes so wealthy he/she need never work again much faster than a mediocre one).

Brexit may well help. Assuming corporatist-wing Tories remain marginalised, it's likely that employers will be starved of low-waged imported labour, forcing them to bid up pay for the settled population, encouraging people to do more hours (perhaps helped by changes to benefit rules) and to return to the labour market or stay longer in it. And if there's a focus on more liberal migration rules for the highly skilled, we may start to see downward pressure on incomes at the top, which paradoxically will keep the affluent in the labour market for longer.

[Ander Broadman]

I think this is another example of reality revealing what it is politicians are really working for.
The dominant ideology at play since the early 1980’s had been “flexible labour markets”.

But in reality, what’s been happening are policies shifting power to employers. If labour market flexibility is what you’re after, as Chris rightly says, the end result of “labour market negotiations” is that employers would be offering jobs that better match employees preferences. Instead they are able to offer terms that straightjacket workers into unfavourable conditions.
Of course what all that talk of labour flexibility WSJ really about was rigging the game more to bosses and capitals favour.

Of course, union policies of the 1970s weren’t asking for the sort of things I suspect Chris is asking for here, but that was the 1970s, and in principle an effective trades union system could as well be negotiating appropriate “un-straightjacketed” hours for workers as they were at negotiating petty rules about job specs in 1960s factories.

[Towerbrioche]

@Mark

Brexit would only help in that scenario if those workers who might benefit were organised so as to do so, otherwise unscrupulous employers will simply pit one set against the other as well as leaning on the government to encourage immigration from outside of Europe.