Labour's employment miracle rolls on - but for how long?

News Analysis: Record numbers are in work but the Government wants to do even better

TWO YEARS on from its landslide election victory and the Government can boast a labour market that a Tory administration should die for. More people are in work than at any time in recorded history. The number claiming benefit, at 4.3 per cent, is the lowest since May 1980 while even the more prudent Labour Force Survey shows a drop to 6 per cent - the lowest since records began in 1984.

But can it continue? Can it cope with the implementation of a whole series of reforms to the labour market aimed at bringing new workers into the market and ensuring their rights are protected once they find a job?

Tomorrow sees the official launch of the Working Families Tax Credit, which replaces Family Credit and is aimed at guaranteeing a minimum income of pounds 10,000 a year for families or lone parents. It follows hard on the heels of the National Minimum Wage and the New Deal, while a host of measures are in the pipeline, spearheaded by the Employment Relations Act which will bring in maternity leave, parental leave and trade union recognition.

The Government's New Deal programme - a thoroughly Old Labour idea of taxing rich companies to fund a subsidised jobs scheme - has put more than 100,000 long-term unemployed into work.

More importantly, this influx of new people into the jobs market has not been accompanied by spiralling wage inflation. A tight labour market should lead to employers hiking wages to find and retain staff, while unit costs rise productivity falls correspondingly.

Productivity and unit costs have held up and the Bank of England is not too concerned, according to its latest inflation report. Wages are falling according to all surveys except the official one, which recorded a 5.2 per cent rise for June and which some economists things was erratic. In fact the Bank has lowered its forecasts for earnings growth saying that, on balance, unemployment may be able to fall further than previously thought without triggering inflation.

The Minimum Wage has also been absorbed by the economy, at least according to the latest report by Incomes Data Services that found little marked increase in earnings growth because of the Minimum Wage. According to David Hillier, an economist with Barclays Capital, New Deal is reducing the claimant count by 6,000 a month, implying that demand for labour is "higher than anyone could have dared to have hoped for at this stage. Part of the reason for that is the improved flexibility of the labour market. The structural changes mean the slowdown in activity over the last year may not be followed by a noticeable crease in unemployment."

Or in the words of DeAnne Julius, the leading "dove" on the Monetary Policy Committee, the UK has moved away from the model "where pressures of the labour market would allow wage increases which would in turn develop into price pressures."

This is music to the Treasury, which believes the old argument that there was only a fixed number of jobs in the economy has been shown to be a fallacy. Officials concede the current economic climate has been ideal to launch these initiatives. But they insist the moves would be successful in any case because they are targeted at a specific group of people - those who would work but were discouraged by the pitifully small extra income from working as opposed to claiming benefits.

The WFTC is the cornerstone of Chancellor Gordon Brown's root-and-branch reform of the tax benefit system and the latest weapon in his self-proclaimed mission to modernise the British economy.

When it comes into operation on 5 October, it aims to take 500,000 working families out of the tax and benefit system entirely. Significantly, it will aggregate top-up income support and child-care costs into the pay packet rather than forcing claimants to queue for hours at the Post Office or dole office. The removal of this stigma should improve the current take-up rate of 70 per cent for Family Credit.

The Treasury has pointedly refused to say how many new jobs WFTC would create but independent estimates vary from 40,000 to 100,000, which on recent figures is the equivalent to just seven or eight months worth of claimant count falls.

While the labour market should be able to absorb this, there are two key hazards. The first - and also the main reason for opposition from business organisations - is that the regulatory burden will discourage them taking on more people.

In the words of Mark Sharman, principal policy adviser at the British Chambers of Commerce: "It is employers' perception that they will be confronted with a library full of paperwork that would push them over the edge that prevents them taking on people."

John Cridland, director of human resource policy at the Confederation of British Industry, said: "Our members do not criticise what the Government is trying to achieve, but the result is that they will have a considerably greater administrative burden. They will have to employ an additional person to deal with the administration."

He said that the extra holiday entitlement from the Working Time Directive, for instance, raised the question whether employers would be able to afford to take on extra staff to cover the extra leave.

According to the Institute of Directors, for a small business with between one and four employees the marginal pay roll costs of an extra employee are pounds 280, while for large companies with a human resources department they are just pounds 5.

The other concern is that as more and more workers are brought into the workforce - often with minimal training and workplace experience - overall productivity rates are likely to fall. Barclays' David Hillier said there was a danger of the labour market sucking in increasingly less efficient workers. But he said productivity overall was a success story for the UK economy and its greater use of part-time employment made its labour market more flexible.

Stephen Bell, chief economist at Deutsche Bank, added: "The fact that they are young, inexperienced, low productivity people in low wage jobs means that it does not feature in the big picture - apart, of course, from helping public expenditure."

Start your day with The Independent, sign up for daily news emails
News
people
News
A survey carried out by Sainsbury's Finance found 20% of new university students have never washed their own clothes, while 14% cannot even boil an egg
science...and the results are not as pointless as that sounds
News
politicsIs David Cameron trying to prove he's down with the kids?
News
Dominique Alderweireld, also known as Dodo de Saumure, is the owner of a string of brothels in Belgium
newsPhilip Sweeney gets the inside track on France's trial of the year
PROMOTED VIDEO
News
Cumberbatch was speaking on US television when he made the comment (Getty)
people
Life and Style
tech
Arts and Entertainment
Tom DeLonge, Travis Barker and Mark Hoppus of Blink-182 pictured in 2011.
musicBassist Mark Hoppus and drummer Travis Barker say Tom Delonge is 'disrespectful and ungrateful'
Sport
football
Arts and Entertainment
Olivia Colman and David Tennant star in 'Broadchurch'
tvBroadchurch series 2, episode 4, review - contains spoilers
Sport
cyclingDisgraced cycling star says people will soon forgive his actions
News
Britain's Prince Philip attends a Garden Party at Buckingham Palace in London
people
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Ed Sheeran will play three sell-out gigs at Wembley Stadium in July
music
News
i100
News
Lena Dunham posing for an official portrait at Sundance 2015
people
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea