The Road to a Jobs Recovery Is Longer Than It Seems

12/03/2013 12:31 GMT | Updated 12/05/2013 10:12 BST

For anyone hoping to sift a nugget of gold from recent economic data, employment stats have been the place to look. In the past year, the number of people working in the UK has risen faster than at any time since 1989, a remarkable performance from an economy with close to zero growth. Not only have these figures befuddled economists, prompting much debate of a productivity puzzle, but they've also encouraged a sanguine view of the jobs recovery. As the prime minister and leading commentators have been fond of pointing out - and rightly so - employment is now back to pre-crisis levels, making this one of the few economic indicators not keeping the Chancellor up at night.

Yet step back from a narrow focus on the number of people in work and the challenge we face on employment is daunting. Today a new report from the Resolution Foundation charts the UK's road back towards fuller employment, focusing on the more important indicator of the employment rate: the percentage of the population who are working. It confirms that the PM and others are right to say that employment is at record levels; in fact, it's up 160,000 since 2008. Yet during the same four years the UK adult population has grown by 1.7 million, massively outpacing jobs growth. Put that all together and you get a measure for the UK jobs gap: the shortfall between the number of jobs we have and the number needed to keep a steady portion of the population in employment. Today, restoring the 2008 employment rate of 60.3% would require 850,000 more jobs.

Figure 1: The UK jobs gap

Change in raw number of jobs and the 'jobs gap' since 2008, population aged 16 and over


How long will it take to close the UK jobs gap? According to latest Office for Budgetary Responsibility (OBR) forecasts, the answer is further than we can see. In fact, the OBR's latest projections imply that the jobs gap will widen in the next few years before narrowing only slowly from 2014 and still remaining at 820,000 when forecasts end in 2017-18. Of course there is a lot of uncertainty in today's jobs outlook and things might move faster than this. Yet even if UK employment now grows at the fastest sustainable rate seen in any five year period in the last 20 years - the jobs boom from 1994 to 1999 - (effectively ignoring the 500,000 public sector job losses now forecast by the OBR between 2012-13 and 2016-17) the jobs gap won't close until late 2016, eight years on from the onset of the downturn.

So why do these numbers paint a less positive picture than the received wisdom? Partly because our public debate is too focused on the employment level and unemployment rate. These are both important measures but they also both set the bar for a genuine jobs recovery far too low; the employment level goes up naturally as the population grows while unemployment goes down when people simply give up looking for work.

But two other more substantive challenges also make the jobs environment tougher this time around. First, the scale of public sector job losses mean that we're asking something heroic of private sector job creation. If the private sector is to make up for planned public sector job losses and create enough jobs to close the jobs gap by late 2016, it will need to create around two million additional jobs by 2016-17. This is roughly twice the number currently forecast by the OBR. Second, our workforce is aging, making a post-recession employment recovery much more difficult. The population aged over 65 is growing twice as fast as the population aged 16-64. Indeed, around a quarter of the jobs gap that has opened up since 2008 is explained by the aging of our workforce.

None of this is to underplay recent jobs market performance. Compare today's labour market to the early 1980s and 1990s recessions and it's clear that the decline in employment has been far shallower this time around. Yet, as things stand, today's jobs downturn is set to last longer than in both previous downturns, leading to more than a lost decade for the labour market. Nor is this a worst case scenario. On the OBR's own figures the road to a recovery in the employment rate currently has no end in sight.