Britain’s record level of employment is the result of a post-crisis income squeeze that has driven people to work more to compensate for lower real wages, according to the Resolution Foundation think tank.
The UK employment rate has hovered around 76 per cent in 2019 – its highest since records began in the 1970s. But economists have been puzzled by the record-high rate, given that the British economy is slowing.
The Resolution Foundation said in a report today that the explanation lies in the fact that Brits are “working more to compensate for their earnings over the past decade being so much weaker than they had expected”.
Official figures out later this morning are expected to show that real average pay – the amount you can buy with your wages – is yet to return to pre-2008 levels.
The report argues that although Britain’s flexible labour market has enabled the employment surge, it has not caused it since no significant regulatory changes have been made over the past decade.
Torsten Bell, chief executive of the left-of-centre think tank, said that the explanation is not a rise in demand for workers from companies either, as this would have generated strong wage growth, which has not occurred.
He said: “Faced with shrinking pay packets, we have chosen to work more hours or re-join the workforce, as many thousands of women have done. The economic motto for many families has been ‘feel poor, work more’.”
Morgan Schondelmeier of the free-market Adam Smith Institute welcomed the report, saying: “While individuals and families are being driven towards work because of stagnant pay packets post-recession, the fact that they are able to find jobs is a testament to the UK’s flexible labour market.”
She added: “The emergence of alternatives to traditional nine-to-five jobs has allowed millions of people previously excluded from the labour market to find work that suits them.”
Commerzbank economist Peter Dixon said one factor driving up employment was “uncertainty regarding pensions,” which was forcing people to work longer. “This is indicative of the fact that greater uncertainty has played a role in inducing households to increase their labour supply.”
Bell said: “Our objective should be to retain high employment with the wage growth that drives allowing a return to the long term trend of a shorter average working week.”
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