A stronger jobs market is vital to tackle in-work poverty
This week’s Monitoring Poverty and Social Exclusion 2013 report is the first in a number of years to contain good news about the labour market. The unemployment rate is down on 2012, the number of underemployed people has fallen for the first time since 2004 and the proportion of workless households is lowest since the data series began in 1996 (but was much lower in the 1970s).
What’s more, the recession of 2008 and 2009 and its aftermath, which we finally seem to be coming out of, has seen the labour market fare much better than in previous recessions such as in the 1980s and 1990s, when unemployment rates reached almost 12 per cent and 10 per cent respectively.
This is remarkable given how far GDP fell in 2008 and 2009. As the chart shows, the unemployment rate has traditionally taken a very long time to recover to pre-recession levels – and has never returned to the rate experienced in the 1970s.
Research by American economists Dean Baker and Jared Bernstein show that when demand for labour is strong, the poorest benefit most – and conversely are the biggest losers when the labour market is slack. This is because the bargaining power of workers is enhanced. The bottom fifth of the income distribution sees proportionally larger increases in both wages and hours worked than those higher up the income distribution. The implication is that a strong labour market will attack the twin roots of in-work poverty: that is, both low pay and too few hours.
A strong labour market has been rare in recent decades. Since 1979, unemployment rates have fallen below 5 per cent in only two years: 2004 and 2005. Getting back to 2004 and 2005 rates would be a considerable achievement and is probably the right thing to aim at for the foreseeable future. But it isn’t the end, it’s only the start.