James Carrick, economist at Legal & General Investment Management, said jobs figures had been puzzling as ordinarily a slowing economy would lead to a rise in unemployment, but official figures suggest this has not happened.
One potential answer is that government figures are being fudged, but Carrick said there are other factors that should be considered.
Closer analysis of official figures shows many new jobs are classed as self-employed and there has also been an increase in those on government training schemes.
“We’re seeing signs the UK workforce is more flexible than previously thought. One factor may be the higher share of migrant labour – as people without family ties to a region are probably happier to move to find work.
“This means the UK has not as yet seen a structural, or permanent, increase in unemployment.”
In comparison, the US has seen unemployment become structurally higher than it was before the recession, according to LGIM research, which it said could be due to a combination of extended unemployment benefits, negative housing equity and tightened immigration.
Economic recovery
“Labour market flexibility makes it easier for an economy to recover. Companies are understandable cautious about taking on new employees when the outlook is certain. By taking on part-time workers they can build their businesses more gradually and these jobs typically then expand as the economy recovers,” Carrick said.
This time last year Carrick said Chancellor George Osborne was on the road to failure because he believed the stalling private sector could not do enough to make up for job losses in the public sector.
For this reason he said the spending cuts designed to cut public sector borrowing were the wrong path for the government to take.
Now, because unemployment has not reached the level he foresaw, Carrick sounds more optimistic on the UK recovery, citing the weakened pound since 2007 as a positive for our exports and manufacturers.
Yet he still tempers this: “A flexible labour market and weak pound are not enough on their own to rescue the UK economy. We still think that austerity lasts for the rest of this decade, but it does suggest that if businesses can expand, the labour market is ready to play its part.”
