Britain’s jobs miracle: A case of supply creating its own demand

Allister Heath

BRITAIN has turned into a giant jobs factory. The number of people in work surged by 691,000 over the past year, despite continuing reductions in the public sector’s headcount – that is a 2.3 per cent rise and the highest rate of growth since 1989, a period of extremely strong (and ultimately unsustainable) economic growth. More people are working, and they are working longer hours, in a further sign of the labour market’s remarkable recovery. The average work week rose 0.3 per cent year on year, and the overall number of hours worked jumped 2.6 per cent. Despite all of this, companies are planning to recruit at an even faster rate: vacancies jumped by 21 per cent year on year in the first quarter, the highest gain since data began in 2001.

The number of vacant positions (611,000) is now almost at the 2001-07 pre-crisis average of 620,000, according to research by Michael Saunders, chief European economist at Citigroup. This remarkable buoyancy in the jobs market is pushing up nominal wages – and with falling inflation, real wages are also finally starting to rise, in a hugely important moment for the British economy. Average earnings growth hit 1.7 per cent in nominal terms for the three months to February, equal to that month’s consumer price index inflation figure. Private sector pay rises are now at 2 per cent, with the average dragged down by the partly frozen public sector.

The volatile single month figure for earnings growth showed a 1.9 per cent rise in February – exceeding inflation at last and signalling the real wage growth we’ve been waiting for. So where did all the jobs come from? The remarkable development is the continuing rise in self-employment, up by 298,000 (7.1 per cent) year on year, but it is important to note that the number of full-time employees is also surging and rose by 329,000, or 1.8 per cent year on year. So why is self-employment growing so much, accounting for 61 per cent of the net employment growth in the quarter to February, compared with the previous quarter? A few years ago, it was a case of people who had lost their jobs, couldn’t find another, and decided that it was better to work part time as a consultant than to sign on to the dole.

This in itself was a hugely positive cultural revolution, and a sign of a much more self-reliant workforce committed to taking the future into their own hands. It was also a striking case of supply creating its own demand. Today, only 27 per cent of those who became self-employed over the past five years did so because of lack of better work alternatives, according to a survey by the Resolution Foundation – not a particularly high figure, given that the period in question coincided with such a massive recession.

It is also likely that the most recent cohort of self-employed are happier about it than those who joined in 2009; given the number of vacancies, many must be choosing not to become employees. More people want to work for themselves and like the flexibility; this is true both of Thatcher’s children and grandchildren, who dream of being their own bosses and no longer seek the security of the large corporation and the job for life, as well as the older workers who are staying or returning to the labour market in droves. The latter don’t necessarily want to work full-time but they don’t want to, or cannot afford to, retire.

Self-employment can be a good route for them. Credit constraints have eased, technology is better than ever and so the barriers to self-employment keep falling. Some of the rise is also capturing a new generation of entrepreneurs, who will go on to hire people. In part, Britain’s jobs bonanza is being driven by an increased demand for workers from companies – but an increasingly flexible, empowered and entrepreneurial workforce is also creating its own jobs. That is a development we should welcome, not fear. Follow me on Twitter: @allisterheath

Related articles