The State Of Working Britain Blog: 1. Are we there yet? Full Employment in the UK

Welcome to the new blog from the LSE's Centre for Economic Performance State of Working Britain team. This is the first in a regular series of commentaries on the UK labour market. The need for analysis and insight into the workings of the UK labour market is as important as it has ever been. Sometimes the truth is a little more complicated then a simple soundbite.  All the contributors to the blog are acknowledged academic labour market experts who will provide objective and insightful views of the latest developments in the UK and elsewhere.

We start with a comment on the issue of full employment in the UK

Full Employment in the UK
Many people have been exercised by the idea that the UK is reaching full capacity in terms of labour resources. Aside from a measure of the availability of workers to fill jobs, the notion that full employment has been reached also has implications for wage growth, inflation, interest rates and productivity growth.

Full employment means no more people willing or able to work any more hours. So full employment potential could be increased by a rise in the population - be it more births or more immigration - or getting the existing population to work more and/or longer hours. The graph below plots the employment rate for the age 16+ population from 1971 to the present  (number in work divided by population 16+). The middle line is the aggregate employment rate. It is certainly true that the aggregate employment rate is back to levels last seen in the early 1970s. This is perhaps what has led many to contemplate that full employment is near.

UK Employment Rates 1971-2015           Data Source: ONS 

However, as the graph shows, the aggregate trend obscures the fact that employment rates by gender show very different trends. Employment rates for women have grown strongly over the last 40 years, but over the same period employment rates for men have declined sharply. For the same aggregate employment rate, the labour market of today is much more female-centric than that of 40 years ago.

Why does this matter for full-employment? Unless we are willing to believe that there is a fixed amount of work to be done it is hard to argue that there is no spare capacity among men. If there was a 80% employment rate for men in the 1970s, it should be possible to get close to that again before any notion of full employment should be considered. (just where the fall in male employment has been we discuss in the next blog). Similarly why should we believe that employment rates for women have peaked at 55%?

A similar argument applies to the other dimension of labour - hours worked,

Average Weekly Hours  1971-2015             Data Source ONS

The graph plots average weekly hours per worker (total hours divided by number in employment) over the same period. It is clear that the average number of hours worked is below its historical peak and that this is driven by a fall in average hours worked by men. Average hours for women in work have changed little over the last 40 years. Now we may all be more productive so that we don't need or want to work as many hours as in the past, but from the point of view of spare capacity, there is probably still some slack along this dimension.

So are we there yet? Almost certainly not in terms of potential labour supply Could this be achieved without the committing the sin of inflationary wage rises or costly interventions targeting workless men?  We return to these issues in future postings.

Jonathan Wadsworth
Centre for Economic Performance
and Royal Holloway University of London