Britain’s jobs boom over the past decade has a simple explanation: people are working more because they feel poorer, according to an analysis by the Resolution Foundation, a think-tank.
The UK labour market has changed radically since 2008. In the run-up to the 2008 financial crisis, 73 per cent of the working age population was in work and this was viewed as full employment. Now, despite weaker economic growth and an ageing population, 3m more people — including many over the state retirement age — are in work. And the employment rate stands at its highest level since the second world war, when men were fighting and women kept the economy running, the foundation said in a report published on Tuesday.
Ministers have been swift to claim credit. Sajid Javid, the chancellor, boasted in September that “on our watch . . . extra people have gone into work every day since 2010”. Esther McVey, former work and pensions secretary, said last year that jobs growth proved the success of the government’s welfare reforms
But Torsten Bell, the foundation’s director, argued that “higher employment has little to do with a more flexible labour market or welfare reforms”. People were opting to work more or rejoin the labour force because of the post-crisis squeeze on incomes, he said.
“The economic motto for many families has been ‘feel poor, work more’,” he said — adding that the government and Bank of England could have run looser macroeconomic policies had they realised that employment could rise so much without wage pressures starting to build.
The foundation argued the usual explanations for the rise in employment did not hold water.
The UK’s flexible labour market could not be the underlying reason for the post-crisis trend because there had been no significant change in regulation, the think-tank said. Nor could the introduction of universal credit, the government’s key welfare reform, be responsible: most of the jobs boom came before 2018, when only 10 per cent of claimants were on the combined benefit.
Another explanation — advanced by, among others, Gertjan Vlieghe, a member of the Bank of England Monetary Policy Committee — is that uncertainty drove companies to hire more workers instead of committing to costly, long-term capital investments. This is consistent with evidence that businesses are now recruiting people who often struggle to find work — single parents, the disabled and those with few qualifications.
But the foundation argued that if labour demand had driven jobs growth, wages would have grown faster. Instead, pay growth recovered only very recently and real wages remained below their pre-crisis peak. Median earnings were a fifth lower than if pre-crisis trends had continued — equivalent to a £1,700 drop in household net income for a family with two kids and one parent working full-time.
The most plausible explanation, the foundation argued, was that people chose to work more because they found they were poorer than they had expected to be — and those with children found it especially difficult to adjust by spending less.
This fits the evidence in that the rise in employment has been driven by women. It was especially sharp among single mothers, who faced cuts in benefits and also stood to gain more from entering work as the minimum wage rose. Stay-at-home partners are also working more with their employment rate — flat in the years before the crisis — up more than 5 percentage points in the decade to 2019.
Record employment “should still be welcomed”, despite its unwelcome causes, since it had helped people protect their living standards and had helped to lessen regional inequalities, Mr Bell said.
“The lessons for the future . . . are clear. Having waited so long to reach full employment, we should do everything possible to maintain it, and the earnings growth we have been missing for so long.”