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GDP and the Labour Market, Q2 2012 - August Labour Market Update

Released: 15 August 2012 Download PDF

Correction

17 August 2012

GDP and the Labour Market PDF

In the 'GDP and earnings' chart the legend was incorrectly published. The 'GDP growth' legend entry referred to the 'Earnings growth' line and the 'Earnings growth' legend entry referred to the 'GDP growth' line.

GDP and employment

GDP and Employment
Source: Office for National Statistics

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Rising employment and falling output

The labour market continued to display resilience in the second quarter of 2012 in contrast to weak economic activity shown by the recently published preliminary estimate of GDP for the same period. The number in employment rose by 201,000, resulting in the employment rate rising from 70.6 per cent in the first quarter to 71.0 per cent in the second, the highest rate since March to May 2009.

The rise in employment was accompanied by a rise of 0.5 per cent in total hours. However, average hours fell by 0.2 per cent suggesting that although there was increased employment, people reduced their hours.

Since the 2008 recession, employment has not responded in the same way as previous recessions, and this has continued in the latest quarter. Notably, employers have been seen to “hold on” to workers (so called hoarding) despite falling output.

The structural changes in the labour market also help to explain its divergence from GDP. Recent changes to working patterns point towards a more flexible labour market in the UK. For instance, there has been an increase of 218,000 self employed workers on the year compared to a fall of 33,000 employees.

On the quarter, there was an increase of 128,000 employees and 39,000 self employed workers. Additionally, the number of part-time workers increased by 174,000 on the year whereas full time workers increased by 77,000, indicating that employers have preferred to maintain staff levels rather than make cutbacks. This also suggests a willingness of employees and the self employed to reduce their hours rather than leave the job market.

The fall of 0.7 per cent in the second quarter of 2012 is the third consecutive quarterly contraction in GDP.  Total output has now declined by 1.4 per cent over the last three quarters. All four of the main sectors of the economy contracted between the first and second quarter, with construction providing the largest negative contribution to growth.

The preliminary estimate of GDP for the second quarter of 2012 has been estimated on the basis of a substantial drop in output during June, largely founded on the experiences in 1977 and 2002 when the Silver and Golden Jubilee celebrations respectively caused identical changes to the pattern of bank holidays.

In addition, the unseasonable wet weather in both April and June may have had a detrimental effect on economic activity in these months. These factors mean that the preliminary estimate of GDP for the second quarter of 2012 may be subject to greater uncertainty than usual.

GDP and earnings growth

GDP and earnings growth
Source: Office for National Statistics

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Increase in earnings growth and falling GDP

The weakness in GDP has not translated into a corresponding weakness in earnings growth. GDP fell by 0.8 per cent on the year in the second quarter compared to a fall of 0.2 per cent in the first quarter. In the same time period there was a 0.7 percentage points rise in earnings growth on the year from 0.9 per cent to 1.6 per cent. Although there is a divergence between earnings growth and GDP growth, wage growth remains weak.

Source: Office for National Statistics

Background notes

  1. Sources:

    Gross Domestic Product (ABMI): chained volume measures, seasonally adjusted, Office for National Statistics.

    Gross Domestic Product quarter on quarter previous year growth (IHYR): 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 total pay growth (KAC3):  Monthly Wages and Salaries Survey, seasonally adjusted, Office for National Statistics.

  2. Notes:

    GDP data is from the latest release, which is the preliminary estimate of the first quarter of 2012, published on 25 July 2012.

    The labour market data is from the latest “Labour Market Statistical Bulletin” published on 15 August 2012.

  3. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

Content from the Office for National Statistics.
© Crown Copyright applies unless otherwise stated.