Hamish McRae: Shifting patterns in jobs leave us poised to greet recovery

Economic Life: It is even conceivable that there will be more people self-employed than in the public sector

The detail, as so often is the case in economics, is more interesting than the headlines. We have just had a wodge of information about the UK economy, including the unemployment figures and the quarterly Inflation Report from the Bank of England. The headlines for the former were that unemployment was still creeping up, though total employment was creeping up too, while the for the latter I suppose the main messages were that the Bank expected inflation to be below 2 per cent by the end of this year and there to be solid economic growth in 2013.

Click HERE to view 'UK economy inches forward' graphic

There is nothing wrong with this general response. The unemployment numbers, while bad, do sit alongside the more general point that increased employment in the private sector is just about managing to offset the loss of jobs in the public sector and that overall hours worked in the economy seems to be nudging upwards. This is consistent with slow growth rather than renewed recession.

As for the Bank's views, it is now towards the optimistic end of the scale in its expectations for the economy. It does not give precise forecasts for growth, preferring instead its famous fan charts, showing a range of probabilities, but a glance at the charts suggests the bank's collective expectation is for growth to be around 1.5 per cent this year and 3 per cent next. Contrast that with the National Institute's forecast of a contraction of 0.1 per cent this year and growth of 2.3 per cent in 2013. The National Institute has stuck its neck out with that gloomy prediction for this year and it will be interesting to see whether it will look very silly or be triumphantly vindicated. But the Bank has equally stuck its neck out in expecting a great leap forward (albeit from a long way back) next year. We will just have to wait and see. The detail within the new information, however is even more interesting.

Take, for a start, the way the different parts of the economy have fared over the past few years, as shown in the first graph. As you can see, manufacturing took a far greater hit from the recession than did services and has recovered far more slowly. Services output is within one percentage point of its peak, while manufacturing is still seven or eight off it. And the recovery of the onshore economy, that is excluding oil and gas output which is mostly offshore, is appreciably better than the total economy. A further point is service industries seem inherently more stable than manufacturing. That is not to suggest all this talk of rebalancing towards manufacturing is misplaced; simply to make the point that insofar as it is successful, it will lead to a less stable economy.

Another nugget from the Inflation Report was the shift to self-employment, shown in the other graph. We are now back up to the previous peak at 14 per cent of all employment and it is perfectly plausible, given the decline in public-sector jobs, that it will rise further through the next decade. The push to encourage the formation of more small companies, if successful, will be to increase self-employment. It is even conceivable that 10 or more years from now there will be more people self-employed than working in the public sector. That will have huge implications for government policy but also for society. The politics of a country with a rising proportion of people who work for themselves will be quite different from one with large numbers of state jobs.

It is tempting to see these shifts in party political terms. The first surge in self-employment took place after 1979 under the Tory governments; it reversed in the early years of Labour; now it is rising under the Coalition. But that is too mechanical, for as you can see the decline began in 1995, before Tony Blair came to power, and the recent rise began around 2003, long before Labour's 2010 defeat. Still, if the present trend continues, the self-employed will become a more important political lobby and the parties will have to think about what that might mean.

There are many other changes that these two reports highlight. For example there is the way in which immigrants have been successful at getting into employment, much more successful than people born and brought up in Britain. That has aroused a lot of debate and it will continue to do so: what are the characteristics that make immigrants successful in the labour market and what can we as a country learn from that?

Another point is the continuing shift to part-time employment. Is this a voluntary shift, with people preferring to cut their working hours, or are people being forced to downsize, so to speak, the amount of work they do? That too has policy implications, for so much of the employment legislation is designed for full-timers.

Put all this together and the story that emerges is that of an economy undergoing very rapid structural change. That is partly the result of recession and the slow recovery and partly a reversal of the surge in public spending that took place from the early 2000s through to 2009. But what is happening now seems to me to be a speeding up of shifts that would have taken place anyway and it shows the extent to which the UK economy is adapting to a quite different world. As demand recovers – and if the Bank is right, by this time next year it will be rising fast – we should have an economy better able to meet that demand without showing any inflationary pressures.

And that is one of the great uncertainties. How much spare capacity is there in the economy? There is certainly spare capacity in the labour market, and sadly so. But some capacity in the economy will not be needed as demand recovers: we may not need as large a financial sector, perhaps. But the more genuine spare capacity there is, the greater the possibility of recovering the ground lost during recession. It is unlikely that we will get back to the previous peak in output until some time next year. If it is the back end of the year, it will be six years from the previous peak. At some stage growth will head back to its long-term trend, but that still looks a while off.

Start your day with The Independent, sign up for daily news emails
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
Life and Style
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
ebooksA special investigation by Andy McSmith
  • Get to the point
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

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own