Jobs rise is leading us to economic nirvana

News Analysis: It's not just badly-paid, low status jobs that are being created but highly-skilled, managerial jobs too

THE NUMBER of Britons in work has never been higher. Official figures released earlier this week showed employment had reached a record level of 27,319,000 or 73.9 per cent of the working-age population. Although unemployment has started to edge up as the economy slows, Britain is working.

Two reports out today raise the hope that the painfully-won improvement in the performance of the jobs market can continue. One, from the Institute for Employment Research at Warwick University, predicts that between 1997 and 2006 1.4 million new jobs will be created.

More than the expected increase in the population of working age, this will allow unemployment to stay low. While many of the new jobs will be part-time and will employ women, some of the biggest increases in demand will be for professional and technical staff.

A second report by the Institute for Fiscal Studies assesses the Labour Government's changes to the tax and benefit system and the introduction of a national minimum wage. It concludes that the package of measures will make work pay by between pounds 7 and pounds 13 a week extra, depending on individual circumstances. This will increase the probability of people taking a job by around 1 percentage point in most cases.

The two reports add up to a portrait of a labour market where employers are creating jobs and people are more willing to take them. The pessimistic view is that most new jobs are "McJobs" - badly-paid, low status service industry posts. But the reality is considerably more encouraging.

It is true, according to the IER report, that part-time jobs will account for most of the net job creation during the decade from 1997. And it is also true that the proportion of the workforce that is female will have climbed from 43 per cent to 45 per cent by 2006.

But to interpret this as the creation of second-class jobs is to fall for the myth that the only real jobs are those done by men, preferably in dirty and dangerous conditions. A closer look at the forecasts shows that job creation is taking place in two broad categories.

One is the "personal and protective services", which includes security guards and carers, and could be made to fit the pessimistic mould. But the other, and by far the bigger category, is in managerial, professional and technical jobs, demanding high levels of education and skill. On average there will be 171,000 a year more jobs in these areas between 1997 and 2006, compared to 77,000 a year in the personal and protective services category.

The IER forecasts big increases in retailing and tourism. While both will need plenty of part-time female employees, they are also in the process of upskilling the available jobs. For example, hotels and restaurants are having to train staff to meet higher standards of food hygiene, make more use of information technology, and fill more demanding managerial roles. Chefs have to be involved in budgeting, reception staff need to work the computer booking system and respond to customer demands. Basil Fawlty would not keep a job in a modern hotel.

At the same time that demand for labour is increasing, sucking more "economically inactive" people into the jobs market, government policies are helping to boost the supply of labour, according to the Institute for Fiscal Studies.

In a report published yesterday, its researchers found that the average entry-level wage for someone who has been unemployed is only two-thirds the level of those in work. This is because employers are less willing to hire someone who has, perhaps, lost the habits and skills needed in the workplace.

However, a number of policies should help to get the unemployed over the initial hurdle. The Government is introducing the Working Families Tax Credit and childcare credit, national insurance reforms, a 10p starting tax rate and a minimum wage.

The authors, who include Paul Gregg, a Treasury adviser, find that the national insurance reforms - abolition of the 2 per cent "entry fee" and raising the lower earnings limit - are the most effective at making work more worthwhile. The 10p tax rate is least effective, while the WFTC actually discourages some married people whose partners are already working.

Taken together, though, the package of measures will improve the incentive for unemployed people to take a job. The labour supply should increase.

Taken alongside the relative flexibility of the UK jobs market, this means Britain should be well placed to emulate America's combination of low unemployment with subdued wage pressures. That in turn ought to allow inflation to remain low, and interest rates too. We certainly have not reached economic nirvana, but it is a little closer.

Review of the Economy and Employment 1998/99, IER, pounds 80. Contact 01203 524241.

Entering Work and the British Tax and Benefit System, IFS, pounds 20. Contact 0171 291 4800.