Jobs data welcome but underlying trends could impact on economic recovery

Today's improving unemployment figures are welcome, but there remains worrying underlying trends that could impact on the economic recovery.

Unemployment in Scotland has fallen to its lowest level for almost five years with the number of jobless falling by 25,000 between September and November to 176,000. The unemployment rate fell by 0.9% over the quarter to 6.4%. Employment in Scotland increased by 10,000 over the three months to November, to stand at 2,559,000. The latest figures showed an average rate of 7.1% for the whole of the UK. Just above the Bank of England's target for considering interest rate increases.

Despite this positive data we should remember that there is still along way to go. The employment rate remains below its pre-recession peak and unemployment is well above pre-crisis levels. Austerity economics has been the main factor in this dreadfully slow recovery from the recession and the personal price continues to be paid by many working people. Another indication that growth is likely to remain slow is that average weekly earnings growth, at just 0.9%, remains well below the level of inflation.

The STUC has also raised a note of caution. “Today’s release also provides reasons to be cautious about the strength of the labour market recovery. The fall in unemployment this quarter is more attributable to people leaving the labour force than to people finding jobs. The increase in full-time jobs over the last year is also disappointing with only 8,000 more created. Progress in tackling youth unemployment is painfully slow with the 16-24 rate falling by only 0.9% over the year. The Scottish employment rate remains 4.1% below its peak of July 2008 and the unemployment rate 2.4% higher. Today’s figures, while welcome, provide no cause for complacency”.

Another worry is productivity, as highlighted in the analysis by Duncan Weldon at Left Foot Forward. Output has fallen by 4.4% since early 2008 and is around 15% below the previous trend. Despite the severity of the recession unemployment rose much less than many feared, it is assumed because employers cut wages and hours rather than jobs. This means we could expect weak job growth as growth returns.

However, this hasn't happened leaving what economists call the productivity puzzle – output is still 2% below its peak but the number of people in work is higher. This means we have all generally become less productive at our jobs over the last five years or there was been some sort of change in the composition of the labour market. Needless to say, the latter is more likely to be correct. Whilst more people in are in work, they are more likely to be lower productivity jobs than in they were in 2008. Like low wage growth this does not bode well for the speed of economic recovery.

So while today's figures are heading in the right direction, we should be wary about how changes to the composition of the workforce will impact on the recovery. That has to be based on quality jobs, paying higher wages.