Latest employment figures are just the job for a growing economy

Latest employment figures are just the job for a growing economyIf George Osborne can point to one achievement above all as chancellor, it’s the jobs market. The gains are real. Employment growth has been undeniably impressive since 2009. Yet if you look below the headline figures, the picture until recently has been discouraging. There’s been a real problem with the shape of Britain’s economic recovery and the quality of the jobs that have been created.

That’s why data released yesterday on the labour market is particularly important. It shows not only that employment is increasing but that the type of jobs being created are more likely to sustain a recovery.

Aggregate employment stands at more than 31 million, the joint highest level recorded in Britain. The employment rate, at 73.5 per cent of people aged 16 to 64, is also at a record level. True, unemployment rose slightly in the three months to July, to 1.82 million, yet the unemployment rate remained constant, at 5.5 per cent, and is down significantly on a year earlier. Since the recession of 2009, annual employment growth has comfortably outstripped long-term averages.

So why has Britain’s economic recovery over the past six years been fitful and sluggish? One reason is the pattern of employment growth. Full-time employment hasn’t been the real growth area in the jobs market. Instead, it’s been self-employment. Long-term average growth in self-employment up to 2007, the beginning of the crisis, amounted to about 40,000 a year. In the period from 2009 to 2014, self-employment rose by almost 140,000 a year. That’s where Mr Osborne’s employment expansion comes from.

Data released a year ago showed that self-employment was higher than at any time in the previous 40 years. There’s nothing at all unhealthy in an expansion in the numbers of people in self-employment. In an age of digital technology and the ease of working from home, patterns of flexible employment are what you would expect. Self-employed management consultancy has been a particular area of growth in recent years. Yet the ranks of the new self-employed can’t have been particularly well-paid overall. On the contrary, average income from self-employment was 22 per cent lower in 2012-13 than it had been four years earlier, in the middle of the banking crisis and recession. Given that the rise in total employment since the crisis has been predominantly in self-employment, that figure goes a long way to explaining why the recovery in the economy hasn’t been felt by consumers. More people are working but this hasn’t been translated into a rise in incomes. The self-employed tend to be older than full-time employees, with fewer regular hours.

Hence the reason for cautious optimism that at last things may be improving in the labour market below the headline figures. Total pay rose by 2.9 per cent in the three months to July, which is the fastest rate for six years. Earnings are recovering particularly strongly in the private sector, which isn’t subject to the government’s pay cap because of constraints on public spending. The composition of employment suggests an encouraging recent development. In the three months to July, self-employment fell (the decline was just over 50,000, so that total self-employment now stands at 4.51 million). It looks as if the private sector is pulling in more and more people, and that incomes are improving as a result. This is unambiguously good economic news, and good political news for the chancellor.

There is one cloud on the horizon, though. The numbers demonstrate how much Britain gains from immigration. Most of the jobs created in the past year have been taken by immigrants, who fill gaps in the labour market. It would be economically self-defeating for the government to try to crack down on immigration levels to meet its arbitrary net migration target.

Oliver Kamm is a Times leader writer and columnist. Twitter@OliverKamm