A summary explanation of London’s
labour market in the recent recession
Analysis by Melisa Wickham
Presented by Jonathan
Hoffman
What the summary covers:
Looking
Background:
forward:
Possible explanations:
•How
might
the market
factorsinthat
have
Why
has
the
labour
the
UK
and
How does the economy in the recent
supported
the labour
market
thus
far
London
been
more
resilient
during
the
recession, in the UK and London, compare
change
goingso
forward?
recent
recession
far?
to that in the 1990s and 1980s recessions?
•How might this make the recovery
•How
from
has
theGDP/GVA
recent recession
moved? different
from the recovery in the 1990s and
•How
1980s
hasrecessions?
unemployment and
employment moved?
Note:
•It is not presumed that the full impact of the 2008 recession on
the labour market has necessarily been experienced yet.
•For a more detailed examination and explanations see the main
report: ‘Working Paper 44: London’s labour market in the recent
recession’, GLA Economics:
http://www.london.gov.uk/publication/working-paper-44-londons-labourmarket-recent-recession
BACKGROUND
UK
Background
UK GDP fell faster, and further, in the 2008
recession than in the 1990s and 1980s
recessions:
And in
the 1980s
InInthe
2008,
GDP
1990s fell
itGDP
fell
by
byfell
6.4%
by 2.5%4.7%
over
over
over
6 5
5 quarters
quarters
quarters
102
GDP index (100=GDP pre recession peak)
isisequal
This
equal
This isThis
equal
to
toaasteady
steady
rate
to a steady
rate rate
of
of
ofdecline
decline
of
of decline
of
year
2.0% 4.3%
a3.7%
yearaayear
101
100
99
98
97
96
95
1980s
1990s
2008
94
93
92
0
1
2
Source: ONS, GDP chained
volume measure, constant 2006
3
4
5
6
7
8
9
14
13
12
11
10
Quarter from UK GDP peak
15
But the claimant count rate has not risen
as much in the 2008 recession as it did in the
1990s and 1980s recessions:
100 = claimant count rate at UK GDP
peak
Percentage point change from UK output peak in UK claimant count rate
107
106
105
104
103
2008
1990s
1980s
The claimant
rate has
had
But And
by count
the
same
101
increased
increased
by 5.4 so far
time
had
100
byby
only
percentage
increased
4.72.1
99
points inpercentage
1980s
percentage
points
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15recession
16 17 18 19
20 21 22 23 24 25 26 27 28 29 30
points
in 1990s
recession Quarter from UK output peak
Note: Claimant count denominator = claimant count +
102
WFJ
Source: ONS
Employee jobs have also not fallen by as
much in the 2008 recession as they did in the
1990s recession:
Percentage change in UK employee jobs from UK output peak
Employee
But byjob
the same
numbers have
timefallen
fell by
by 4.3% so6.1%
far during
in the
this recession
1990s
recession 2008
100 = employee jobs at UK
output peak
101
100
99
98
97
1990s
96
95
94
93
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
Quarter from UK GDP peak
Source: WFJ, ONS
London
Background
100 = London GVA at time of UK GDP
peak
Like the UK, London’s GVA also fell
faster in the 2008 recession than in the
1990s recession:
ThisThis
is equal
is equal
to a
steady
to arate
steady
of decline
rate of
decline
of 2.8%
of 4.1%
a yeara year
101
1990s
2008
100
99
has fell
fallen by
London’sAnd
output
6.1%9over 6
by 6.2% over
in the
quarters in quarters
the 1990s
recent recession
recession
98
97
96
95
94
93
-2
-1
0
Source: GVA at basic prices,
constant 2005 prices, Experian
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
Quarter from UK GDP peak
And like the UK, the claimant count has
not risen as much in the 2008 recession as it
did in the 1990s and 1980s recessions:
107
2008
106
1990s
105
1980s
104
103
Note: Claimant count denominator
= claimant count + WFJ
Source: ONS
32
30
28
26
24
12
10
8
6
4
2
0
99
22
100
20
101
18
102
16
But by
the
samecount
The
claimant
by
4.1
timeAnd
in
the
rate
in 1990s
London has
points
risen
by6.5
1.7
itpercentage
had risen
by
inpercentage
the 1980s
points so
percentage
points
far in this recession
recession
14
100 = London claimant count rate at
UK output peak
Percentage point change in London claimant count rate
Quarter from UK output peak
Employee jobs have also not fallen by
as much in the 2008 recession as they did in
the 1990s recession:
But by the
Has fallen
by
same
time fell
3.5%
so farinin
by 11.1%
this
therecession
1990s
recession
100 = London employee jobs
at UK output peak
Percentage change in London employee jobs
from UK output peak
102
100
98
96
94
92
2008
1990's recession
90
88
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
Quarter from UK GDP peak
Source: WFJ, Nomis
Background summary:
Peak-to-trough output decline (%)1
London
UK
2008
6.1
6.4
1990s
6.2
2.5
1980s
Constant annual growth rate (over peak-to-
-
2008
-4.1
-4.3
1990s
-2.8
-2.0
1980s
Percentage point change in claimant count
Change in employee jobs numbers (%)3
London figures are derived from Experian’s regional GVA estimates. UK
figures are derived from ONS GDP estimates.
2 From UK output peak to eleven quarters after.
3 For UK output peak to ten quarters after.
-
-3.7
2008
1.7
2.1
1990s
6.5
4.7
1980s
4.1
5.4
2008
-3.5
-4.3
1990s
-11.1
-6.1
1980s
1
4.6
-
-
Why?
Why?
Summary of analysis of possible
explanations:
Possible explanations
Likely contribution to labour
market strength during the
2008 recession so far
1. Reduction in relative wages
High
2. Strong corporate profitability and low
rate of business failures
High
3. Growth in the public sector
High
4. Labour market structural change
Medium
5. Reduction in working hours
Medium
6. Less economic structural change
Medium
7. Measurement error
Low
Reduction in relative wages
Have workers accepted larger
pay cuts/smaller pay rises to
reduce their risks of
unemployment?
Reduction in relative wages
Compared to the 1980s and
1990s recessions it does not
seem that wages in the UK
have fallen sufficiently to
compensate for lower firm
output.
Real unit labour costs
100 = real unit labour cost at GDP peak
106
104
1980s
1990s
2008
102
100
98
96
94
0
1
2
3
4
5
6
7
8
9
Quarter from UK GDP peak
Source: ONS (ROYJ, MGRN, MGRZ,
ABML), GLA Economics calculation
10
11
12
13
14
15
Reduction in relative wages
However……….
Percentage change in relative
unit labour costs (2007 Q1 to
2009 Q3)
10
5
0
-5
-10
Looking forward, slow employment growth during
the recovery should minimise pressure on wage rises
in the UK. However, Sterling is unlikely to fall
much further, so further falls in the relative unit
labour costs in the UK seem unlikely.
-15
-20
-25
Ireland
Spain
Germany
United States
United Kingdom
Source: IMF
Strong corporate profitability and
low rate of business failures
Strong corporate profitability and low rate of business failures
1990
s
peak
16
2008
peak
Net rate of return (%)
15
14
13
12
11
10
9
Source: PSNFC net rate of return (%, SA),
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
8
Strong corporate profitability and low rate of business failures
Actual business failures
Compared to the rise in the 1980s and 1990s recessions
and given the fall in GDP, the rise in company
Looking forward: liquidations has been modest during the 2008 recession.
•Government support
is graduallyfactors:
being withdrawn and this could make future
Contributing
liquidations a risk, however
1990s
2008
•Bank of England’s monetary policy, and
•Forecast low 1980s
real interest
rates inpolicy
the near term should continue to support business
•Government
survival.
Note: Historic business failures are based on data for compulsory liquidations, creditors’ voluntary liquidations, administrative
receiverships, administrative orders and company voluntary arrangements from The Insolvency Service
Growth in public sector
Exclude
jobs inchange
publicinadministration,
Percentage
UK workforcedefence,
jobs excluding public administration & defence,
education,
and social
workwork
from the total
education,health
and health
& social
number
of jobs in the economy……..
102
100 = employment at cyclical peak
100
98
96
94
1978Q3-1983Q4
1989Q1-1994Q2
2007Q1-2010Q1
92
90
-5
-4
-3
Source: Workforce Jobs, ONS
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Quater from cyclical peak in employment
16
Growth in public sector
100 = employment at UK output peak
However,
lot of
of the
this
Around a
25%
increase
is due
to the
public
sector
employmentofincrease
incorporation
financial
between 2008
2010
institutions
(e.g.and
Lloyds)
wasthe
in London.
Around
into
publichas
sector
There
been a
40% of this is due to the
large rise of
since
UK public and private sector employment (08 Q1 to 10 Q2)
reclassification
107
recession
financial the
institutions
into
105
103
101
99
the publicthat
sectorpublic sector
Looking forward, the OBR estimates
employment will fall by around 400,000 by 2015/16.
This means thatLooking
publicspecifically
sector employment
will
at
publiccompound
sector employment
contract at a similar
rate over the next 5
Public sector employment (excluding 'Other public
the 2008experienced
recession:
sector')
years as the privateinsector
between
2008
Private Sector Employment
and 2010.
Total public sector employment (including 'Other
public sector')
97
95
0
1
2
3
4
5
6
7
Note: ‘Other public sector’ includes financial corporations. In the timeframe
above, RBoS and Lloyds were included in the 3rd quarter from UK output
peak (2008 Q4). Northern Rock was included prior to the GDP peak.
Source: ONS
8
9
10
Quarter from UK output peak
Factors that are likely to support the labour
Looking
forward
summary
market further as the economy grows:
•Reduced relative wages
•Strong corporate profitability
and low business failures
•Lower economic structural
change
Factors that may slow any improvement in
the labour market as the economy grows:
END
For a more detailed examination and
explanations see the main report: ‘Working
Paper 44: London’s labour market in the recent
recession’ by GLA Economics:
http://www.london.gov.uk/publication/working-paper44-londons-labour-market-recent-recession
ANY QUESTIONS