You have to go back a long way to find a time when unemployment fell as quickly as it has in the past 12 months. Modern records began in 1972 – the year David Bowie released Ziggy Stardust and Mary Peters won gold in the pentathlon at the Munich Olympics – and there is no precedent for the 538,000 drop in the internationally agreed measure of joblessness.
Unsurprsingly, that was the cue for the government to give itself a pat on the back. Our plan is working, said the prime minister. Britain is fast becoming the employment capital of the west, according to Danny Alexander, the Liberal Democrat chief secretary to the Treasury.
Ministers had plenty to savour. Unemployment fell below 2 million and the jobless rate tumbled to 6% – in both cases to levels not seen since the three months ending in October 2008, the month in which the global system had its near-death experience.
Dig a bit deeper, however, and the picture is not quite so encouraging. In the three months to August there were almost three-quarters of a million more people in work than there were in the same period a year earlier. But in the most recent three months, the increase was a much more modest 46,000.
That is consistent with another piece of evidence from today’s labour market statistics – a rise in inactivity – suggesting that the pace of growth has eased back a bit. While unemployment was 154,000 less than in the three months to August than in the previous quarter, that was primarily because of a 113,000-strong increase in inactivity. Almost half of that jump was accounted for by a rise in the student population, but the rate at which jobs are being created has slowed.
As a result, there is no immediate sign that rising employment and falling unemployment will be translated into higher real wages. The annual inflation rate in August was 1.4%, while earnings grew at annual rate of 0.7% (or 0.9% if bonuses are excluded).
A narrowing of that gap over the coming months can be expected for three reasons: inflation has fallen to 1.2% and is likely to fall further; recruitment surveys suggest that the tightening of the labour market has forced employers to offer higher wages and salaries; and October’s above-inflation increase in the minimum wage will push up the rate of earnings growth.
But it is likely to be the end of the year, at the earliest, before real incomes start to rise – and even the increase will be barely perceptible. Ministers would have been hoping for a rather more rapid improvement in living standards, given the imminence of the next general election.
