Rising employment figures hide some worrying trends

The employment figures came out yesterday which showed the employment rate rising to pre-recession heights and unemployment falling to 2.12 million. At the same time though, the figures showed that wage growth continues to be outstripped by inflation, while productivity continues to fall. Rising employment = good; falling real wages and productivity = bad, so what’s going on?

Some of this puzzle appears to be explained by some recent labour market trends, namely the rapid rise in self-employment. There’s a very interesting post up at Piera today by FlipChart Rick. It contains some nice charts which I will repost here.

The first chart shows the changes in employment since the 2008 crash, split between employees and self-employed. The Coalition likes to shout about the increase in jobs since they came to power, but since 2008, the rise in employment is almost entirely accounted for by the growth in self-employment. As Rick says in his Piera post:

“Take out self employment and the figures would be rubbish. The government wouldn’t have had much to boast about until the back end of last year.”


Source: ONS Trends in Self-Employment

The next chart shows the mean and median weekly earnings for employees and self-employed workers. Both median and mean weekly wages for employees have barely moved since 2001 (in real terms), which is pretty dire, but when compared the the weekly wages of self-employed workers, it looks pretty rosy:

Screen Shot 2014-07-10 at 162927

This third chart comes from the ONS rather than Rick’s blog and shows whether those who are self-employed employ other people or not. It shows that while the number of “one-man bands” has risen by around 750,000 since 2007 (with most of the increase happening since 2010), the number of self-employed people with their own employees has actually fallen. It’s been argued that rising self-employment is a good thing because it demonstrates a increase in entrepreneurship and “wealth creators”, but this chart shows there is little evidence of that:

As Rick says in the post linked to above:

“More self-employed people, not much extra work, so falling productivity, under-employment and collapsing pay.”