Whereas real GDP fell slightly in the final quarter of 2011, by 0.2 per cent compared with the previous quarter, employment and hours both rose. The number of people in employment rose by 60,000 taking the employment rate from 70.2 per cent in the third quarter to 70.3 per cent in the fourth. Similarly total hours worked increased by 0.4 per cent between the latest two quarters.
During the recession, employment fell by less than might be expected given the scale of the fall in output. By the middle of 2009, output was more than 7 per cent below its pre-recession peak, while over the same period, employment fell by around 2 per cent, and total hours worked by less than 4 per cent.
A decline in full time and permanent employment, with a corresponding rise in part time and temporary employment, may suggest that firms have been 'hoarding' labour - using the greater flexibility offered by reducing hours worked rather than the number of employees themselves. It may be easier to adjust hours worked in response to changes in demand and output, rather than making employees redundant and then having to recruit new workers at a later date. There are also benefits to retaining existing staff in terms of an established skill base and accumulated experience.
During the subsequent recovery, the labour market has similarly recovered only modestly, with employment rising by less than in previous recoveries from recession. Notwithstanding the movements in the latest quarter, by the end of 2011, the drop in GDP from the pre-recession peak was still nearly 4 per cent, similar to the overall fall in total weekly hours, while employment was only about 1.5 per cent lower.
Weakening earnings growth in 2011 Q4
Another way in which the labour market has adjusted to the recession has been through slower earnings growth, which in December was 2.0 per cent for the whole economy. By contrast consumer prices rose by 4.2 per cent in the same period.
Earnings have been growing more slowly than price inflation for much of the past four years, and this has been a key influence on the subdued economic recovery seen so far. However the fall in real earnings has diminished slightly in the last few months as the rate of consumer price inflation has fallen back somewhat. Consumer price inflation fell further to 3.6 per cent in January as the impact of the rise in the rate of VAT to 20 per cent in January 2011 drops out of the annual inflation figure.
Source: Office for National Statistics
Gross Domestic Product (ABMI): chained volume measures, seasonally adjusted, Office for National Statistics.
Total employment level (MGRZ): Labour Force Survey, all those aged 16 and over, seasonally adjusted, Office for National Statistics. Total weekly hours (YBUS): Labour Force Survey, seasonally adjusted, Office for National Statistics.
Average weekly earnings growth, total pay for whole economy (KAC3): Monthly Wages and Salaries survey, seasonally adjusted, Office for National Statistics.
Consumer price inflation, percentage change on a year earlier (D7G7).
GDP estimate for quarter four from Gross Domestic Product: Preliminary Estimate – Q4 2011 published on 25 January 2012.
Most recent Labour Market estimates are available from the Labour Market Statistical Bulletin published on 15 February 2012.
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