Full employment – job done? Not even close.

27 January 2017

This week the Joseph Roundtree Foundation (JRF) held a conference on “inclusive growth”. It’s a concept that fits neatly with the Prime Minister’s vision of an economy that works for all. As an objective, it’s hard to disagree with, but what it actually means and how to measure success is less clear. At the conference I participated in a workshop on “delivering full employment”, which certainly sounds an essential component of inclusive growth.

Full employment – where all those who can work do so – has long been a focus of governments. It represents the most efficient use of labour (allowing for structural, frictional and voluntary unemployment) and is therefore a key economic indicator. Full employment in the UK is currently characterised by an unemployment rate that is 5 per cent or less. Which means, based on last week’s labour market data, the UK has full employment.

At 4.8 per cent, unemployment is at the lowest it has been since the third quarter of 2005, and on the latest comparative data for the Eurozone, just two countries (Germany and Czech Republic) had lower rates. Equally, employment is at the highest it has been since records began, at 74.5 per cent. Job done.

Except, of course, that all this really shows is how one-dimensional these metrics are.

Geographical and demographic differences are stark. In the North East, for example, the unemployment rate is double that of the South East. The employment rate for people with a disability or health condition is below 50 per cent. For people from ethnic minorities it is 64.5 per cent, compared to 76.3 per cent for their White counterparts. It seems full employment can be achieved without inclusive growth.

Perhaps more disturbing are the disparities in rates of economic inactivity – something which full employment completely misses. 46.4 per cent of disabled people are economically inactive compared to 15.7 per cent of those without a disability. Clearly, someone who has limited capability for work is less likely to be in employment (or looking for it), but many disabled people do want to work, and could do so with the right support. Instead they are trapped on benefits, and largely ignored when the monthly labour market statistics are released. There is nothing inclusive about that. The huge difference in inactivity rates amongst people of different ethnicities is also largely invisible – economic inactivity amongst people of Pakistani, Bangladeshi or Chinese ethnicity is around double that for White people. No government can celebrate full employment that only applies to some groups and some communities.

Yet, even broken down, headline employment, unemployment and inactivity measures fail to capture quality. The notion of good and bad jobs – usually accompanied by a patronising categorisation of low skill jobs as ‘bad’ – is profoundly unhelpful. But job quality is key, and should capture issues like job security and satisfaction, both of which impact a person’s wellbeing.

A new basket of metrics is needed.

Equivalised household income is an important dimension to capture – especially in the context of the pressing issue of in-work poverty. But any measure of household income should take into account the characteristics of that household (for example disability prevalence) and income type (income source impacts deprivation, beyond income level). For households with work, employment type should be considered – part time may be the right answer for some people, but currently around 1.2 million people can’t find full-time employment. And whilst only 6 per cent of employees are temporary workers, just under a third of those can’t find permanent jobs. Finally, any measure of inclusive growth must consider the wellbeing of the individual. If someone working in a low skill, low pay job has good job satisfaction, then this could be considered a better outcome than someone who is miserable in a better paid job.

If the Prime Minister is to deliver her vision of an economy that “spread[s] wealth and opportunity across every community”, then this more inclusive understanding of growth is essential. How else will we hold her to account?

Charlotte Pickles, Deputy Director and Head of Research, Reform

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