Briefings and Blog

Need help? How to use this site >

All Aboard..

With this months figures showing the employment train is leaving ‘Recession Station’ the immediate question has to be where is it going?  Nationally the rate of unemployment has fallen and the number in employment has risen.  For Devon the number of people claiming Job Seekers Allowance has fallen for the fourth consecutive month.  Partly we anticipated this would happen as seasonal employment linked to our vibrant tourism industry picked up for the Easter and summer season.  But scratch below the surface of these headline figures and a more worrying message emerges: the destination of the employment train might not be a strong prosperous economy.  Output has hardly moved over the last year never mind built up a head of steam to power the employment train to prosperity.  Indeed if the national figures are accurate employment growth has outstripped output improvements. This can only mean one thing – productivity has fallen, we are producing slightly more with much more employment.  That’s not good for our long term competitive position and certainly won’t keep the employment train moving forward.

Added to this is the reduction in notified vacancies, the number of part-time jobs that are being created and the stagnation of wage levels.  Controlling cost – particularly labour costs – during the recession was critical for business survival and is it essential that costs are kept down as we move forward.  But with Devon already having some of the lowest wages of anywhere in England and the cost of living increasing faster than average wages, disposable income is being significantly squeezed.  The employment train might be moving but for many residents of Devon it is not leaving poverty far behind.

Combine the squeeze on disposable incomes with the reduction in public sector spending and you begin to wonder what is fuelling the employment train – not the retail spend we saw in the 1990’s and not the government spending we saw in the 2000’s.  It could be private sector investment – but anecdotal evidence suggests bank lending is still very scarce.  It could be export sales, this would be the best fuel for a recovery. The favourable exchange rates should help our export markets and dampen imports – dragging money in from overseas and reducing the leakages of our own wealth. There is some evidence to suggest we are exporting more. In the food and drink sector, for example UK exports have grown, in nominal terms, by 11.4% in 2010, to £10,83bn. Emerging markets such as China, are presenting new opportunities to produces, particularly for luxury goods such as chocolate and brands such as Burberry.  This is the way of genuinely creating wealth rather than just circulating money around our own economy.  That’s certainly the theory analysts have clung to for the past year, but its manifestation is much slower than expected. But maybe that’s all about to change – real businesses are seeing improvements that the data isn’t showing yet and that’s why the employment train is moving.  But if it’s not, the employment train won’t take us to a prosperous economy, won’t improve wage levels lifting people out of poverty and the journey may be much shorter than we hoped.

View this article on the Chief Economist's website >