Hamish McRae: The jobs market has changed for ever

Many of the jobs will be part-time, with a continuous rise in self-employment

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We are not through this one yet by any means. Today we get the troubling reminder that the havoc being caused by the recession has still some way to run, the monthly unemployment numbers.

We also get the Bank of England's latest assessment of the economy in its quarterly Inflation Report, a judgement that is expected to highlight the fragility of any recovery. The housing market may have stabilised and retail sales have been remarkably resilient but we need to recognise that there is a huge difference between the economy stopping actually shrinking and staging a sustained recovery. We may not be going down any longer - the National Institute thinks the economy probably bottomed in May – but we are not yet coming up to any significant extent.

The unemployment figures will be particularly significant. Every one of us has been touched in some way by what has been happening to the economy: businesses closing, retired people finding their income savaged, people unable to move house because of the mortgage famine and so on. But it has been seeing our friends and colleagues losing their jobs that brings home the social costs of this downturn. Anyone who doubts the value of economic growth should look around and observe the alternative.

Growth of sorts will, of course, return and with it, eventually, a turnabout in the jobs market. But the new jobs are going to be different from the old jobs in all sorts of ways: they will be in different industries – I think we know that. But they will also be different in terms of the job contract, the relationship with the employer, the flexibility of hours, the more gradual move towards retirement and so on. We can catch something of this changing labour market already by looking at what is happening to the pattern of rising unemployment. It is a glimpse of the future.

There are several notable features about the unemployment figures, and I expect these will be as evident in today's numbers as in previous months. One has been the divergence between the monthly claimant count and the rolling three-monthly estimate on the International Labour Office definition. Both are rising but the monthly count is going up much more slowly than the wider ILO measure.

It is not clear why. It maybe that a lot of people who have lost their jobs reckon to get back reasonably quickly into the workforce and have not bothered to sign up. It may be they are doing part-time work instead, or indeed working full-time setting up their own business. But for whatever reason, it does suggest we are moving to a more flexible workforce.

Another feature in the statistics is the way in which young people are losing jobs – or simply not getting them – compared with older workers. That may be partly a matter of school-leavers' qualifications, as our leader on page 20 notes. It may be a lack of "soft" skills. It may be associated with the minimum wage. But for whatever reason – and we should be suspicious of pat explanations – it suggests that young people do not have the competitive advantage in the labour market that you might have expected.

By contrast total employment of older people, especially those beyond normal retirement age, was rising until very recently. Part of that may be because some people have seen their pensions damaged and the return on their savings cut and so have to go on working longer. But they seem in general to have been able to find work, unlike so many younger people, which is again interesting given the supposed cult of youth in the job market.

The most troubling thing, though, is the possibility that when the economy recovers, the job market will recover much more slowly. In the last boom the UK job market was exceptionally strong, sucking in workers from abroad. But in most other countries the job market was not strong at all. The US created new jobs more slowly than in any previous expansion; most of continental Europe, with the exception of Spain, also saw slow job growth. Most of the new jobs on the Continent were temporary ones.

The UK is interesting because we have less job protection for permanent workers than most Continental economies but also the lowest proportion of temporary jobs. I fear that as job protection has increased in the UK we will shift more and more to the Continental model.

What we can be absolutely sure about, though, is that the new jobs will not in the main be secure, full-time ones. There won't be many public sector jobs, for the squeeze on the public sector, even under Labour's plans, will be the most severe since the late 1970s – maybe even more severe. And those plans are not credible anyway, so the squeeze will be worse. The private sector will have to try to mop up the slack but its ability to do so will be severely curtailed by the economic pressures we all know about. One of the strongest sources of private sector employment in the last boom, the financial services industry, is still shedding labour.

But all is not gloom. Every year the proportion of tele-workers increases, with something approaching 10% of the workforce now either working from home or from a variety of locations using home as a base. Thanks in part to the lower sterling, UK wages rates are now competitive again. UK private sector services produced larger foreign earnings last year than every before, notwithstanding the move into recession.

So what will the job market of the future look like? It is likely to have six main characteristics. One, much of the employment will be part-time, sometimes by choice and sometimes imposed on people. Two, many of the new jobs will be taken by older people. Three, there will be a continuing increase in self-employment, with tele-working speeding this shift (around 70 per cent of tele-workers are self-employed). Four, while some job growth will come from a cluster of high-tech manufacturing industries, most will be in private sector services. Five, most of the net new jobs will require high skills. And finally the present trend for women doin g better than men in the workdforce looks likely to continue.

But first, growth has to resume. Without that our job market remains in a lot of trouble.


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