Don't be fooled – it's no phantom recession

With jobless figures falling, some might question whether the country really is in such an economic mess, but Julian Knight has no doubt

So the UK is technically in recession but unemployment is falling, 7,000 in the three months to July. These two facts seem mutually exclusive. In fact, ever since the UK economy – according to the Office for National Statistics (ONS) – really started to go off the rails at the back end of last year, the percentage of people employed in the economy has gone up rather than down, and that trend is accelerating.

In the three months to July, for instance, 71.2 per cent of people of working age had a job, up 0.5 per cent on the quarter. That may not sound like much, but it represents 236,000 extra people in work.

On the face of it, as far as jobs are concerned this could be called a phantom recession. But that, of course, is far too simplistic, if not downright wrong. Tell the people of Yorkshire, where the unemployment rate leapt by 23,000 to 10 per cent of the workforce, for instance, that this a phantom recession, and you will no doubt get a typically forthright Yorkshire response. Or tell the people of Margate, where 38 per cent of shops are shut, that this recession isn't so bad because the jobless figures say so.

So what on earth is going on? The answer to this has been perplexing many observers for months – even prompting some to doubt the validity of the ONS UK growth figures. We can be fairly sure of the jobless figures, but the ONS growth figures are estimates and prone to revision. Ergo, believe only the employment data, so the argument seems to go. But a year since the return to work started, a clearer picture is emerging of what is actually going on, and in many ways it's at least as pernicious and damaging as the usual story of economy goes into recession and jobs are lost.

Of the 431,000 jobs created by the UK economy in the past year, a whopping 318,000 are part-time. This has pluses and minuses. Firstly, part-time work tends to favour the inclusion of women in the workforce, which will help to offset some of the damage done by the shrinkage in public-sector employment, which disproportionately hits women. Unemployment among women actually fell 16,000 in the three months to the end of July, despite the dire warnings heard pre-austerity. But undoubtedly full and part-time, higher-paid, public-sector jobs are being replaced in large part by part-time, lower-paid, private-sector employment. A fair trade-off if you believe the public sector chokes economic growth in the private, but not from a simple which-job-pays-best perspective.

Self-employment, it seems, is becoming de rigueur in our economy: with only 86,000 new jobs created being actually employed, this reflects people moving from employment with a legal safety net to no safety net whatsoever. Risk is being shifted from employers to the "employee", through the recruitment of people as self-employed contractors, to be dispensed with if necessary in a nanosecond. And not forgetting, as ever with the UK economy, there is a hefty North/South divide, with the South benefiting from the Olympics and the sheer economic pull of London, whereas in parts of the North and West of the UK the slow haemorrhage of full-time jobs, which started decades ago, continues.

This "race to the bottom" in the job market is highly damaging, according to Heiner Flassbeck, a former German deputy finance minister who is now chief economist at the United Nations Conference on Trade and Development (UNCTAD): "The UK and other Western economies are actually suffering due to flexible labour markets rather than benefiting. Wages are not rising and the shift in work from full to part-time means many consumers don't have the same disposable income. Our economies depend on consumption, and this isn't coming about because of the suppression of wages by the working of the labour market."

Currently wages are rising at 1.5 per cent, about half as fast as prices, so those lucky enough to get a raise are probably still poorer in real terms.

The UK is, according to Mr Flassbeck and UNCTAD, in a catch-22 situation: low wages, combined with growth of part-time rather than full-time work is keeping income growth down, and with it economic expansion. Just keeping your head above water or muddling through is no way to grow the economy, and the buoyant employment figures are a symptom rather than a counterbalance of this general economic malaise.

But this view loses sight of a fundamental truth, according to Philip Shaw, an economist at Investec: "If we didn't have a flexible labour market, then we wouldn't be producing any jobs. What's worse: people being economically inactive and a drain on the state, or people in work even if it is part-time and temporary?"

Whether the jobs being produced are the "right" sort of jobs matters little. What matters is that jobs are being produced at all.

"Companies are also not shedding staff as they have done in previous recessions, partly because they believe that better times will come, and they know that sacking too many people could mean expensive rehiring down the road. In return for this forbearance, since 2008 employees have been accepting zero or small pay increases. This will be a familiar tale to most workers," Mr Shaw added.

It means older workers are keeping their jobs in higher numbers than during previous recessions, which saw the private and particularly the public sector lose more experienced staff. But youth unemployment – the scourge of many Western economies – remains stubbornly high, as over a million 18 to 24-year-olds out are of work.

"This is where the danger lies. If you don't bring younger staff into the workplace then it erodes the skill base and productivity over the long term."

But it's not as simple, as some have suggested, that older workers are in effect bed-blocking the younger generation: "Younger and older workers occupy different places in the labour market, and you can't simply replace one with another and solve youth unemployment," Mr Shaw said.

And the recent rise in self-employed, part-time roles is itself temporary. For one, the end of the Olympics will bring thousands of lay-offs – this is no phantom recession, just a little more difficult to pin down.

Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Louis van Gaal would have been impressed with Darren Fletcher’s performance against LA Galaxy during Manchester United’s 7-0 victory
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Rhys Williams
commonwealth games
Life and Style
People may feel that they're procrastinating by watching TV in the evening
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
fashionLatex dresses hit the catwalk to raise awareness for HIV and Aids
Life and Style
The veteran poverty campaigner Sir Bob Geldof issues a stark challenge to emerging economies at the Melbourne HIV/Aids conference
Arts and Entertainment
Benedict Cumberbatch and John Malkovich talk Penguins of Madagascar at Comic-Con
comic-con 2014Cumberbatch fans banned from asking about Sherlock at Comic-Con
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
filmGuardians Of The Galaxy should have taken itself a bit more seriously, writes Geoffrey Macnab
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Graduate Recruitment Resourcers - Banking Technologies

£18000 - £25000 per annum + OTE £40,000: SThree: Huxley Associates are looking...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform