The job market has performed remarkably well in recent years. Employment fell far less than expected in the recession, then recovered more strongly than feared when the economy turned up.
Unemployment appeared to be stuck at 2.5m, where it had been for the past two years. True, a drop would have been welcome, but at least it was not rising.
It did, however, rise last week, which was worrying. There was a 114,000 increase in unemployment, the biggest in two years, pushing the rate up from 7.7% in the March-May period to 8.1% in June-August. This was undoubtedly a weak set of figures, suggesting the private sector is not compensating for public sector job cuts.
Worse than the overall rise in unemployment was the increase to nearly 1m in youth unemployment, with the rate up from 19.7% to 21.3% in three months. More than a fifth of young people are out of work, and the talk is of a a lost generation.
I think we would serve young people better if we did not give such a bleak picture of youth unemployment. As everybody knows, the 16-24 unemployment figure of 991,000 includes 269,000 full-time students looking for part-time work.
Taking these out and measuring unemployment as a percentage of the youth population (rather than just the economically active) knocks the youth rate down to a still-high but not so hopeless 9.9%. That is not my figure, by the way, but from the Centre for Economic and Social Inclusion.
There were some striking, possibly odd, features of the numbers. The job market has been notable for the rise in the number of people aged 65 and over in work. From Jun-August 2009 until March-May this year, employment in this age group rose by 138,000. Over the latest three months that went abruptly into reverse, down 73,000.
Was this genuine or employers clearing decks ahead of the abolition of the default retirement age at the start of this month?
If not that, the drop in older workers could be explained by a record, 175,000, fall in part-time employment in the latest three months, accounting for all but 2,000 of the overall fall. It could be that in uncertain times firms or public sector bodies cut part-timers first. But it is a bit odd.
Anyway, strange though some of the detail is, the big picture is one of a weakening job market. Both the broader Labour Force Survey measure of unemployment and the monthly claimant count – up 17,500 to 1.6m – were up strongly. The fall in employment was a shocker.
What should we do? A higher minimum wage – up 15p to £6.08 this month (£4.98 for 18-20 year-olds) – does not help.
I would not reject out of hand all aspects of Labour’s “five-point plan for jobs and growth”. Though cutting Vat ack to 17.5% is a non-starter, a one-year National Insurance break for small firms taking on new workers, a temporary Vat cut to 5% on home improvements and bringing forward capital investment all merit consideration.
Having written on capital investment, and how thre is room to do more, it was disappointing to see little mention of this at the Tory conference. Indeed, having initially got excited about credit easing at that conference, there was not much there to lift the spirits or the economy.
We are also, returning to another theme, paying for our neglect of small and medium-sized enterprises (SMEs). They are the engines of job creation in the economy. SMEs account for 13.5m jobs in Britain and, according to Nottingham University’s Globalisation and Economic Policy Centre, account for 65% of all new jobs created.
They cannot do it without the lifeblood of credit. Lending to SMEs has been falling since early 2009. Firms cannot expand without finance. Without finance – lending from banks – we are starving the engine of fuel. Until we stop doing so firms will struggle to create jobs.
There is one other obvious area. Last week I took part in The Housebuilder’s annual housing market intelligence conference. The housbuildijng sitiation is simply stated. Last year the number of homes built in England, 103,000, was the lowest since 1923, and less than half of the 250,000 (or more) needed to keep up with the growth in the number of households.
Housing has been stymied by two problems. The first is the planning uncertainty that has gripped the industry since the coalition came into power in May last year. Hopes that this uncertainty would be lifted by the government’s new planning regime have been tempered by the fierce and vocal opposition to those plans from the countryside lobby and some parts of the media.
Mainly, however, it is because of a mortgage famine stretching back four years. Wholesale funding markets, that in the first half of 2007 accounted 60% to 70% of new mortgages, have failed to come back enough. Net mortgage lending has been negligible for the past three years.
As with SMEs, housing cannot recover in the absence of finance. The government and the Bank of England could, if they wished kick-start the markets for securitizing (bundling into financial instruments) new mortgages. There are other steps, which the Ernst & Young Item Club takes up in its new report out tomorrow, including permanent stamp-duty exemptiojn for first-time buyers.
Mortgages are, however, the key, and the rewards are potentially great. Each newhouse creates 1.5 jobs directly and three to four indirectly. A much-needed extra 100,000 houses each year would mean at least half a million additional jobs.
It worked in the 1930s, as Steve Morgan, chairman of Redrow (and Wolverhampton Wanderers) pointed out. Though thought of as unremittingly grim, the period from 1932 onwards saw a sustained recovery in Britain, driven in large part by new housing. As I say to people, not for nothing do we talk of the 1930s semi.
Can we have a building boom again? We could, but only if people in authority think creatively about the mortgage market. There is not a lot of evidence of that so far.
My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.
This post originally appeared at David Smith’s EconomicsUK and is reproduced with permission.