Policy Research in Macroeconomics

Employees – a declining species in the labour market ecosystem?

Today was a busy day for employment related statistics, with the Office for National Statistics (ONS) publishing its monthly bulletin and set of data.

And overall, it’s still a fairly good news story on the employment front, with those in some form of employment rising, and unemployment falling to 6.8%*, the lowest since early 2009. As the Governor of the Bank of England also confirmed today, however, there is still plenty of “slack” in the economy – recall that for around 9 years under the last Labour Government (1999-2008), unemployment was under 6%, and for nearly 2 years under 5%.

The number of those in employment rose by 283,000 on the last quarter (October to December 2013). But the eye-opening news is that once again, most of the increase – nearly two-thirds – was in the self-employed. We have been writing about this for some time, but we can now see that it is a well-entrenched pattern. Of the 283,000, only 99,000 were employees – the remainder were self-employed – 105,000 full-time, 77,000 part-time.

So are we seeing a major change in the labour ecosystem, with the self-employed taking over the habitat of the employee – a declining species?

And year on year, we find that the number of employees has risen by 351,000, or 1.2%, while the number of self-employed is up by 375,000, a whopping 9%.

Here is our chart showing the changes and “split” between employment and self-employment since the July to September 2013 quarter, i.e. over the last 6 months. We recently looked at who are the newly self-employed  and it appears that around half are in more skilled areas, and the rest in what may be more marginal or lower paid areas.

Employed and self-employed 2013-14

Employed and self-employed 2013-14

For more exciting employment charts, read and look on! All data sourced from ONS.

Here is a chart showing the sharp rise in self-employment over the last 6 months.  After lying flat for a year to mid 2013,  we can see how it has shot upwards since last July.

self-employed Jan-March 2014

self-employed Jan-March 2014

The next two charts look at recent developments in part-time work – knowing from other ONS data that a significant proportion of part-time employees would like to have more work, i.e. represent under-employment.  Yet over the last 2 years, after a swift rise from a trough in 2011, part-time employment has plateaued.

On the other hand, part-time self-employment – which had likewise flatlined, but from mid 2011 to mid 2013, has simply surged ahead over the last 6 months.  Strange.  We hazard a guess that changes in treatment of benefits claims has pushed some people into the most marginal end of self-employment, whilst others are finding employment “niches” as economic activity has revived to some extent.

part-time employees May 2014

part-time employees May 2014

part-time self-emlpoyed May 14

part-time self-emlpoyed May 14

But much of the current media focus is now on the narrowing gap between the annual rate of increase of inflation (as measured by the CPI) and total pay (of employees, not self-employed, please note).  In fact, total pay has not gone up by as much as many anticipated in March, with total pay (including bonuses) up 1,7%, and regular pay by a below-inflation 1.3%.  But it is easy to forget just how far pay has slipped behind inflation during the life of the present government.

To demonstrate this simply, the next chart uses the CPI and total pay indices, re-based to 100 in March 2010.  We have then simply taken the data for each subsequent March, so it is not a comprehensive picture of the gap.  But it gives a good idea of the orders of magnitude involved.  Lost pay in real terms over the last 4 years is the space between the red and blue lines.  In short, inflation over 4 years has gone up by 12%, but pay has risen by 6%.  And that ignores the part-time self-employed struggling to make ends meet.

pay gap 2010-14

pay gap 2010-14

Note: For whatever reason, ONS does not produce stand-alone monthly figures, unlike most other EU countries (and the USA), but uses 3 separate monthly survey figures to provide in effect an average (see ONS’s sort of explanation of how they do it in the introduction to their table X01 ). The latest quarterly figure is for January to March 2014. By the way, the latest monthly figure for March alone shows unemployment rising by 72,000 from the very low February figure.

*The original version of this article gave the rate as 6.9%, which is that for 16-64 year olds.  6.8% is the rate for all economically active over 16 i.e. including 65+ age group, and is the figure more widely used in the media.

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