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I thought I’d just heard a sneak preview of an April Fool’s joke. Someone on the radio reckons MPs are getting a basic pay hike of nearly £1,000 from the first of next month, taking their salary to £65,737 a year. Yeah, right. Pull the other one, was my immediate reaction. But no – this was the mainstream BBC news, not a revenge prank by some grieving 6 Music disk jockette, and remarkably true.  

This is the economics of the madhouse. MPs do an important job and in an ideal world would earn more. But in such a world so would the millions of hard working private-sector employees who haven’t had a pay rise since the start of the recession, not to mention public-sector employees in less high-status jobs who are looking forward to zilch in the next couple of years. The trouble is we are currently living in far less than ideal times and should all recognise that the name of the game at present ought to be pay restraint, including for bankers, barristers, and backbenchers in the House of Commons.

Not surprisingly, the public-sector unions are up in arms, though they deploy the less than convincing argument that all their members deserve the same percentage pay rise as MPs. Thankfully, both the government and the opposition – with an eye to the general election – say ministers and shadow ministers will forgo the rise. However, this is surely not enough.

As the coming months will show, there is no shortage of candidates for seats in Parliament. Cash reward is clearly only part of the motivation to seek election, and anyway the basic salary of an MP is getting on for three times what their average constituents earn. After a year of revelations about parliamentary expenses and constant talk of the need to cut the structural fiscal deficit, this is surely one of those moments when all our political representatives should show some genuine civic leadership and either say "no" to this pay rise or donate it to charity (though perhaps not to the Homeless Duck Foundation).

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I’ve just been to a couple of interesting events, linked to two new publications. One was a debate, held at the RSA, to consider the recent New Economics Foundation (NEF) report 21 Hours (which has been the subject of some comment). The protagonists, Anna Coote, NEF’s head of social policy, and Andrew Simms, NEF’s policy director and head of climate change and energy, reckon Britain would benefit in all manner of ways if available work was shared around. They argue that a gradual shift toward a legal cap of 21 hours on the working week would be good for the planet, help reduce unemployment and enable us to make a better fist of bringing up the next generation. Their opponents, me and Mark Littlewood, director of the market-oriented think tank the Institute of Economic Affairs, weren’t so sure.

Don’t get me wrong. I’m not the kind of economist who thinks we should work all the hours God sends. It just that shorter hours have to be earned. As countries get richer people can enjoy the same standard of living from fewer hours of work. Although it’s fashionable to talk of the UK’s “long-hours culture” this is very misleading. Even prior to the recession – which has seen a slump in the amount of work being done – as a society we were on average putting in fewer hours to meet our needs and desires than ever before in our industrial history. However, the view that we would be able to enjoy even more leisure at the wave of a legislative wand is wrong headed. The result would be a lower standard of living and higher, not lower, unemployment. To be fair to the NEF, it admits it would be happy with increased frugality – a zero growth, low-consumption economy is central to its brand of green economics. But I doubt if most people will sign up to a return to the Stone Age, even though there is a widespread consensus in favour of what might be called “green growth” based on lower carbon production and lifestyles.

More generally, the central premise of 21 Hour Society overlooks the fact that what should really concern us is not the number of hours we work but the control we have over our working time. In contrast to curbs on working time, flexible working both helps boost our living standards by aiding organisational performance and makes people happier. Indeed, our happiest workers are self-employed people – a group that tend to work much longer hours but also have more say over how they allocate their time (or “time sovereignty”, to use the analytical jargon).

Significantly, the importance of workers having greater control over their working time featured heavily at the second of the events I attended, this time organised by The Smith Institute think tank to launch a new book, The Good Work Guide, published by Earthscan. The book’s author, Nick Isles, is a former colleague of mine and well known from his time at both the CIPD and The Work Foundation. But though a friend, I’m being objective when I say that he has produced a good piece of work that deserves a wide readership, especially among those who genuinely want to combine improvements in organisational effectiveness with a better quality of working life than most people currently enjoy.

The power of Isles’s book lies not so much in the way it tries to offer practical steps by which organisations might move toward building good workplaces – important though that is – but rather in the way he nests his proposals within a powerful critique of current conventional economic and management wisdom. As a result, The Good Work Guide takes the reader well beyond the familiar comfort zone of HR pieties and guru speak. However many hours you work this week, I recommend you make time to read it.

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Judging by the success of film director James Cameron’s CGI spectacular Avatar, 3D is set to become all the rage at our cinema multiplexes in the next few years. But it’s not only movies that need the 3D treatment. Official statistics, as today’s labour market figures demonstrate, could do with it too.

News looks good on the face of things. Unemployment, of the broadest definition used by the Office for National Statistics (ONS), fell by 7,000 in the three months to November last year. November and December also saw a combined drop of 26,000 in the number of people unemployed and claiming jobseeker’s allowance. Okay, this might not look like much against a backdrop of 2.5 million jobless people. But it’s a lot better than many analysts - including myself - were expecting, and it could indicate that the human cost of the worst UK recession for 60 years will prove to be far less than originally feared.

As a professional economist, however, I’m genetically prone to treating good news with a dose of scepticism. And here’s where the 3D glasses come in handy. A closer look at all the dimensions of today’s job statistics is less comforting. While there may be fewer people unemployed and looking for work, there are fewer in work too (14,000 fewer in the latest quarter). The apparent paradox is explained by a rise in the number of people quitting the jobs market.

These are mostly young people turning to study as an alternative to the dole. There are now 2.5 million students – half a million more than when the recession first hit. Yet the latest figures also show a 6 per cent quarterly rise in people who say they are not looking for work because they are retired. Unlike the recessions of the 1980s and ‘90s, early retirement hasn’t been a noticeable feature of the current jobs slump. Indeed the employment of older workers has proved remarkably buoyant, in large part because many employers have sought alternatives to the kind of large-scale redundancy programmes that traditionally put those closer to retirement age first in the firing line. Worryingly, however, this might be about to change.

According to today’s ONS stats, employment among the over-50s has fallen for the first time since the recession began in 2008. This was also the only age group to register a slight quarterly rise in unemployment (15,000) rather than a fall. School or college is rarely an alternative to work for older unemployed people, so retirement it is. As a result, our 3D look at the jobs market is not particularly rosy for the grey segment of the UK workforce.

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Making his pre-budget report statement to the House of Commons on Wednesday lunchtime, the chancellor of the exchequer, Alistair Darling, had the air of a reassuring public school headmaster. We’d all been rather overdoing it on the financial razzle and will have to make amends. But other than the kids with the biggest tuck boxes it’ll be a year before anyone gets caned.

It was one of the chancellor’s better despatch box performances. Sober, serious and almost entirely sensible. Yet while the package he delivered has much to commend it, Darling made one or two glaring policy errors that either he or his successor will have to rectify once the general election is out of the way.

On the positive side, the chancellor was absolutely right to introduce a set of measures that have a neutral impact on the public finances in 2010-11. With the economy not even yet officially out of recession, trimming – let alone slashing– the budget next year runs the risk of economic relapse. Things will look better from 2011 onward – albeit probably not the soar-away growth that Darling forecasts – making the necessary medicine of major spending cuts and hefty tax rises a little easier to bear.

The chancellor should also be congratulated on his one-off windfall tax on bankers’ bonuses. This is fair and will provide the treasury with around £0.5 billion if the banks decide to make big payouts to their staff. That sum helps provide support for groups like the young jobless and unemployed over-50s, who are suffering as a consequence of the financial crisis. Darling also announced some useful measures for small businesses – which are also struggling in the aftermath of recession – and is providing some worthwhile investment in skills that will enable jobs to be created in emerging sectors, notably those linked to low-carbon technologies.

I was less convinced, however, by the chancellor’s plans for dealing with the fiscal deficit after 2011. It was no surprise that the pre-budget report gave little precise detail of where the spending axe will fall, other than admitting that the overall squeeze will be tight – growth in spending falling from 2.2 per cent next year to just 0.8 per cent a year thereafter. But what he did say indicates that he had made some wrong calls.

For example, limiting public-sector pay rises to 1 per cent for two years from 2011 might seem tough, but it is simply not tough enough. What’s needed is a freeze on the public-sector pay bill. Presumably Darling doesn’t want to alienate the public-sector unions this side of an election. But they won’t be happy anyway and the government would have shown greater mettle by confronting opposition head on.

Yet bad though that decision is, it is nothing compared with the ugliest aspect of the pre-budget report, the additional 0.5 per cent hike in national insurance contributions (NICs) for both employees and employers. This came almost at the end of Darling’s statement and spoiled what would otherwise have been a satisfactory package in the current economic circumstances.

The 0.5 per cent increase in NICs already pencilled in for 2011 was a bad idea – doubling the increase could be a hammer blow to what is likely to be a “jobs-light” recovery. The prospect of an impending increase in employers’ NICs is bound to make organisations think twice about hiring additional staff, even before the hike comes into effect.

While the chancellor has shown that he recognises the short-run risk to jobs from cutting the fiscal deficit too quickly, he seems to have overlooked the medium-term risk associated with what critics will undoubtedly call his “tax on jobs”. He should reconsider this before his final pre-election budget next spring.

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I watched with amusement last week when Gordon Brown, David Cameron and Nick Clegg each told business leaders, assembled for the annual CBI conference, that they had the right plan to slash record government borrowing. None gave any precise details; the only obvious dividing line was that a Conservative government would introduce a deficit-busting budget within 50 days of the next general election, while Labour and the Lib Dems won’t start cutting spending big time until they are convinced that a solid economic recovery is underway.

The really big political question is of course what the coming fiscal austerity, whenever it begins, will mean for public service delivery. This week the Conservatives will attempt to kick-start a policy debate on “doing more with less”, which should at last enable us to get a clearer view of where they are coming from on getting better value for money from the public sector. Meanwhile, press reports suggest that the government will shortly publish a white paper on “smarter government”, including a cull of quangos and cost-cutting measures to reduce the number of senior civil servants and relocate more civil service jobs to cheaper locations outside London.

The backdrop to all this is not simply the need to bring the public purse back into the black but also the seemingly perennial problem of poor public-sector performance. According to the Office for National Statistics, public-sector productivity fell by 3.2 per cent between 1997 and 2007, an annual average fall of 0.3 per cent, despite rapid growth in public spending. So can we realistically expect the public sector to do more with less after years of having achieved less with more?

A popular argument, which the Conservatives are pursuing, is that poor public service performance can be traced to the Labour government’s centralised target culture and an associated lack of autonomy for front-line professionals to “get on with the job”. My view, however, is that these things are themselves mainly symptoms of underlying performance problems in the UK’s public sector rather than the root cause.

What really stands in the way of making public-sector workplaces more productive are too many managers who aren’t up to the job and a centralised system of employment relations that enables powerful trade unions and other professional producer interests to squeeze as much as they can from taxpayers’ money. Failure to confront these barriers to improved public-sector performance outcomes will derail efforts to do more with less whenever the inevitable cuts in public spending finally kick in.

The public sector is over-managed in numerical terms (the “too many pen-pushers” view has merit) but seriously under-managed when it comes to management quality. Too few doctors, nurses, social workers, teachers or police officers receive sufficient training to manage people productively. Public-sector line management capability is cripplingly poor in a range of areas that have a direct impact on service delivery, including absence, stress, conflict management and especially performance management.

Problems associated with poor line management are in turn exacerbated by centralised employment relations and pay determination systems that enable powerful trade unions and professional producer interests to reach deals on employment levels, conditions of work and pay that deplete the public sector of resources that could otherwise be used to improve service quality.

Getting more from less is far easier said than done. Proposals to improve public-sector performance by putting trust in front-line professionals are laudable, but we need to be realistic about the significant barriers that continue to stand in the way of progress - notably far too many front-line managers with limited ability to manage people and a system of employment relations that most private-sector workplaces waved goodbye to years ago.

The coming fiscal austerity - which I reckon will require 600,000 public-sector job cuts and no average real-term increase in public-sector pay before 2013 at the earliest - will expose these barriers like never before.

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Hooray! The recession is over. So how come Brendan Barber, TUC general secretary, told those gathered in Liverpool yerterday for the union movement’s annual congress that unemployment could be heading toward 4 million? It might simply be that Barber is a doom-monger who wants to scare Gordon Brown – who will himself address the TUC congress today – into ruling out wholesale cuts in public spending of the kind that are widely expected after the next general election. However, the TUC warning is not totally without foundation, as a CIPD analysis of the outlook for jobs, published yesterday, also suggests.

A starting point is that Britain’s flexible labour market has the potential to enable a more rapid fall in unemployment than experienced following the recessions of the 1980s and 1990s. By comparison with previous recoveries, the labour market exhibits fewer structural problems of the sort that in the past have triggered inflationary wage pressure before unemployment has been able to return to pre-recession levels. But unfortunately, in order to realise this potential the economy will need to sustain a strong recovery in demand for products and services, prospects for which remain highly uncertain.

The strength of demand from still heavily indebted consumers is set to remain subdued for some considerable time. The need to cut the government’s structural fiscal deficit will in turn require tax hikes and cuts in public spending that will curb demand still further. Recovery prospects thus depend much on the role of exports and business investment in driving forward the UK economy, but this itself will require a solid improvement in global economic conditions and, in particular, a robust return of business confidence.

I posit three possible scenarios for the jobs recovery:

A jobs-lined recovery: a strong and sustained rebound in global demand and investment enabling employers to take advantage of Britain’s flexible labour market to create jobs, resulting in a strong and early rise in employment and a return to the pre-recession rate of unemployment by the end of 2012;

A jobs-light recovery: a modest, sustained economic recovery sufficient only to enable a gradual increase in net job creation, with recruitment only slightly exceeding redundancies, continued high unemployment, and no prospect of a return to the pre-recession rate of unemployment before 2015 at the earliest;

A jobs-loss recovery: a weak and uncertain economic recovery, marked by continued fear of a double-dip recession, with cutbacks in recruitment, a renewed bout of redundancies as employers find it increasingly difficult to hold on to staff retained during the initial recession, unemployment continuing to rise well beyond 2010 to a peak of at least 3.5 million and no prospect of a return to the pre-recession rate of unemployment for at least a decade.

My current expectation is that the jobs-light recovery scenario most closely fits the likely outcome for the UK economy, while a jobs-lined recovery is least likely despite the underlying flexibility of the labour market. And while a jobs-loss recovery is not the most likely scenario it remains a distinct possibility, which means it is of vital importance that the government, the Bank of England, and their counterparts abroad, maintain expansionary fiscal and monetary policies for the time being. As a result, although Barber’s warning of 4 million jobless people is probably somewhat pessimistic, he is right to highlight the potential risk that the economy still faces.

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Oh, for the days when August was a quiet month and when the media was full of silly season stories. The only thing that’s amused me in recent days has been the “Python eats neighbour’s pet cat” headline. Otherwise the papers are far from providing a laugh a minute. For example, reading coverage of the latest jobs market figures, alongside the Bank of England’s updated forecast for the UK economy, is rather like looking at a British summer weather chart – very few bright spots amid a welter of depressing gloom.

The jobs market is still in decline, even though the latest headline unemployment figures – which increased by 220,000 to 2.4 million people - are not as bad as some had feared. Employment fell very sharply, by 271,000, in the three months to June – the number of people in full-time work dropped by 309,000. This failed to be fully reflected in the unemployment figures because of a substantial rise of 127,000 in the nearly 8 million people classified as “economically inactive” (jobless but not seeking work). Without this, headline unemployment would probably already have topped 2.5 million.

More than 2.1 million of the 8 million economically inactive say that they want to work, which points to a labour market in deepening distress, continuing to shed jobs at an alarming rate and with the genuine level of joblessness already above 4.5 million people. When one adds to the mix that almost 1 million people are currently working part-time because they are unable to find full-time work – this number having increased by 104,000 in the three months to June – and the rate of growth in average annual earnings has slipped to 2.5 per cent, it is easy to appreciate the strain the recession has brought to bear on the UK workforce.

The situation would be less depressing if we could comfort ourselves with the prospect of a swift return to strong economic growth. But, if the Bank of England is correct, this is not on the cards. According to the Bank’s governor, Mervyn King, the best our weak jobs market can look forward to in the near term is an anaemic recovery. And at worst, as the CIPD warned earlier this week, an anaemic recovery might well trigger a further avalanche of redundancies later this year.

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It’s one of my busiest days of the month again – the regular trawl through the official labour market figures published by the Office for National Statistics. The latest set is the most eagerly awaited for a while, given that they appear amid mounting talk of economic “green shoots” and offer a picture of the first full year of the jobs recession.

Sadly, anyone looking for serious good news in today’s figures will have little to grasp at. The recorded quarterly fall in employment and rise in unemployment still ranks among the worst seen in the post-war era. Vacancies are drying up at a rapid rate and redundancies go on rising. The grim news thus continues, though this is not unexpected given the dire state of the economy at the turn of the year.

There is little in the figures to suggest that unemployment will not rise above 3 million next year. The one glimmer of hope is the claimant unemployment count (ie, people signing on for Jobseekers’ Allowance). Not only is the count increasing much more slowly than might be expected but, remarkably, the number of people flowing onto the count actually fell in May. If indicative of underlying economic factors – rather than the result of the way in which benefits are administered or a reduced propensity for unemployed people to sign on at job centres – these claimant figures are amazingly good given what we know about the state of the jobs market, though too puzzling to yet be seen as a genuine “green shoot”.

As for the human impact of the first full year of the jobs recession, the stats are fairly horrible. In all, 0.4 million fewer people are in employment. The toll on the private sector has been horrendous – almost 0.7 million jobs have been lost. The public sector, by contrast, has added more than 0.25 million jobs (a 5 per cent increase) – much of it because employees of the RBS and Lloyds Banking groups are now being counted as part of the public- rather than private-sector workforce. Although, as the CIPD warned earlier this week, the public sector is likely to shed 0.35 million jobs in the next five years once government gets to grip with its massive budget deficit.

Overall, the burden of net job loss has fallen entirely on full-time employees. The total level of self-employment and part-time employment is broadly unchanged from a year ago. It has also generally been a “man-cession”. The redundancy rate for men has more than doubled. The number of men in work has fallen by 2 per cent, the number of women in work by 0.6 per cent. The number of men unemployed has increased by 45 per cent, the number of women unemployed by a quarter. This pattern is mainly explained by the relative buoyancy of part-time employment and the growth in public-sector employment, types of employment in which women are strongly represented.

Young people aged under-25 have fared far worse than the over-50s, though the latter have seen relatively larger increases in unemployment because they have fewer education, training or employment options if they do lose their jobs.

The manufacturing sector has shed 0.2 million jobs – a 6.7 per cent decrease. The other big job-shedding sectors are distribution, hotels and restaurants and finance and business services. These sectors each shed 2.8 per cent of their workers. While this was a recession triggered in the finance sector, as in most previous recessions it is the real economy, and manufacturing in particular, that has suffered most. The amount of job losses in manufacturing is also noteworthy because this is the sector which has shown the greatest effort on the part of employers and workers to seek alternatives to redundancy, such as pay freezes, pay cuts and short-time working. Without such welcome action the impact of the recession on UK manufacturing employment might have been far greater still. So we can after all take some comfort from today’s jobs figures: things could be worse.

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I’ve just finished watching Alistair Darling deliver his second budget speech. The chancellor looked downbeat – he always does – but managed to sound more upbeat than most of the figures he presented to the House of Commons.

Darling told MPs that the UK’s short-term economic outlook has worsened considerably since he made his pre-budget report last autumn. He reckons the economy will contract by 3.5 per cent this year, though unlike many economists he looks forward to seeing green shoots of recovery before Christmas and still better news in 2010. Indeed, if the chancellor is to be believed the economy will be growing at a more than healthy 3.5 per cent in 2011. Sadly, however, this in itself does little to reduce the deficit in the public finances that has emerged since the start of the recession.

Public-sector net borrowing will reach £175 billion in 2009-10, 12 per cent of national income, this compares with the chancellor’s pre-budget report forecast of 8 per cent. This is by a wide margin the largest public-sector deficit recorded since the second world war. Moreover, there is now little prospect that the deficit will fall much in the next few years, by which time public-sector net debt will be more than three-quarters of national income.

The deficit and debt burden greatly limited the chancellor’s scope to use spending and tax measures to stimulate the economy this year and next over and above the £20 billion stimulus package already announced in the pre-budget report. As a so-called “budget for jobs”, today’s package is thus a modest affair and unlikely to prevent unemployment from rising above 3 million by next spring.

Darling’s main jobs initiative is a range of measures designed to guarantee work or training for 18-24 year olds who stay on the dole for more than a year. Although the chancellor was not in a position to do much, the package aimed at the under-25s offers a good bang for its buck in creating opportunities for work and training. However, the experience of past schemes is that they provide short-term relief to young jobless people but do little to enhance their long-term employability. Providing support that is more than simply “make work” will be the acid test of this new initiative.

Those 18-24 year olds who are already unemployed may be disappointed that the new guarantee will not come into full effect before January 2010. However, it is important to recognise that the measures will kick in when the number of young people flowing into long-term unemployment is likely to be close to its peak. Moreover, young jobless people can be thankful for the help being directed at them. Jobless people aged over 50 could also do with some additional assistance in finding work – but this year’s debt-dented budget does relatively little for them.

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Yesterday’s official inflation figures showed that the rate of price rises, as measured by the headline retail prices index (RPI), fell to 0.1 per cent in January. This suggests that we will soon be adding another “d word” to the current lexicon of economic debate: this time “deflation” rather than “depression”.

Near-zero inflation on the headline RPI measure is an extraordinary occurrence. Inflation hasn’t been this low since 1960, when I was a three-year-old toddler and presumably concerned only with the price of rusks. But minimal inflation also changes the rules of the game of pay setting.

The RPI remains the principal inflation benchmark used by employers. Although pay is normally “sticky” during downturns – ie, it doesn’t fully adjust downwards in response to lower price inflation - a zero or negative RPI presents employers with an intriguing dilemma. Zero or negative inflation makes it easier for employers to suggest pay freezes as a reasonable option to staff, and indeed increases the need to introduce freezes in order to curb upward pressure on real pay and real pay costs. Consequently, in the context of a deep recession and a sharp rise in unemployment, a zero or negative RPI could result in the equally extraordinary occurrence of average pay increases also falling towards zero.

This outcome is most likely to present itself in the private sector, where generally demand is falling, profits are being squeezed and there is little trade union presence. Things are obviously different in the public sector, where at present pay is actually rising relatively quickly. But at a time of considerable strain on public finances the government should take advantage of near-zero inflation to freeze public-sector pay as well.

Exceptions could be made – eg, when recruitment and retention demands require pay increases. But, with the overall outlook for private-sector jobs deteriorating by the day, such pressure will remain limited for now. If the government can make savings on pay bills at this time, it will be easier to fund employment and training measures aimed at tackling unemployment.

Politics, and the possibility of strikes by public servants, present an obvious barrier to such a move. But that shouldn’t prevent an honest and open debate on public-sector pay at this time of national crisis.


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