All writing, hopefully, changes your perception on an issue. Great writing makes you think again and see things differently.
Martin Wolf has written a great article in the FT this morning. He's addressed the issue of unemployment and provided me with a wholly new insight on why it is not rising as fast as many (me included) expect in the UK at present.
His explanation is a simple one, but so intensely logical it's hard to see why he seems to be the first to point it out, but that's the Emperor's new clothes for you. As he notes (and I'm quoting very selectively from a dense set of data):
From 2007 to 2010, output per person employed rose 5.1 per cent in the US, but fell 2.6 per cent in the UK. The only significant high-income country to register higher productivity growth than the US was Spain, with output per person employed up 6.3 per cent. That, combined with the depths of the recession, explains the huge rise in the Spanish rate of unemployment, to 21 per cent. All other large high-income countries registered productivity falls.
The result? US GDP actually rose whereas that in the UK fell. But UK unemployment has not mushroomed as expected, whereas that in both the USA and Spain has - in the latter enormously.
As he also notes:
One might suppose that these huge contrasts in the changes in output per person employed reflect US decisions to reduce hours of work by laying off actual workers (the “hire and fire” culture) against choices elsewhere, including in the UK, to lower hours worked per employee, instead. This was not entirely the case. In France, Germany, Italy and the UK, output per hour worked fell, as well. Thus, US output per hour rose 6.2 per cent between 2007 and 2010. It fell by 0.5 per cent in France, 1 per cent in the UK, 1.3 per cent in Italy and 1.4 per cent in Germany. Interestingly, Spain is like the US: its output per hour rose 5.3 per cent, partly because of the collapse in employment in construction.
So the conclusions is:
Even though UK productivity performance has been weak, unit labour costs have risen little. Thus, the pain has been shared out among workers via stagnant nominal wages and reductions in hours per worker and in output per hour.
So, by having a continental style labour market, and not as many claim a US style one, we have shared out unemployment. The impact may be on profitability of course: but people are still in work. This to me seems the best explanation as to why, so far, unemployment has not sky-rocketed despite the obvious problems in our economy that I've seen. And as Wolf concludes:
If one is going to pursue austerity, as the UK government does, it greatly helps to have poor productivity performance. With US productivity, too, the UK would have a jobless rate of over 12 per cent.
On balance, I am grateful that the UK job market has responded to this recession in this curiously continental way. More important, so should George Osborne be. This has probably not delayed the recovery. It has certainly made it far easier to bear the recession and his austerity.
And note what 12% unemployment would mean: unemployment of 3.77 million, close to that which I forecast. For once, if I'm wrong, I'm grateful. But let's also note: it's not private sector efficiency that has given rise to this: more some rather welcome inefficiency.