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The Guardian view on Britain’s jobs market: Osborne could use Scrooge’s caution

“What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer,” asks Scrooge in A Christmas Carol. “Every idiot who goes about with ‘Merry Christmas’ on his lips, should be boiled with his own pudding, and buried with a stake of holly through his heart. He should!” Ebenezer famously struggled to be Yuletide-appropriate. Even so, as Britons sink into the season to be maxed-out, a bit of Scrooge’s scepticism about how we’re going to pay it all back would be handy. Because while the government is trumpeting the jobs recovery, and there are some grounds for celebration, there are also real causes for concern.

But let’s not stint on a hefty dollop of good news: 2015 has been the year of the pay rise. After seven miserable years in which wage increases have lagged behind price rises, salaries are starting to go up in real, inflation-adjusted, terms. And go up sharply: in August, earnings were 3.1% higher than a year ago, even while inflation was zero. These are some of the biggest increases in a decade, albeit largely helped by vanishing inflation rather than generous employers. The one sector where bosses have dug into their pockets is in minimum-wage jobs – where they were forced to by the state jacking up statutory rates for the low-paid.

So far, so good. The problem is that George Osborne’s budgetary maths is predicated on this happy trend continuing for the rest of the decade – and there is good reason to believe that it won’t. For a start, inflation has been quelled by forces far from British shores: plunging commodity prices, a slowdown in China, markets getting worried about a rise in US interest rates. It is impossible that the price of iron ore will keep dropping for ever – and when it turns, as it probably will next year, inflation will pick up too. So further big rises in real pay rely on a dramatic improvement in the jobs market. At the risk of sounding Scrooge-like, that is improbable. Unemployment is already at record lows – so it is not likely that firms are going to rush out and try to hire more staff, luring them in with extra lolly. This October, the Bank of England published a survey carried out by its regional agents on some 360 companies employing over 300,000 workers. It found that “small and medium-sized enterprises expected employment growth to be slower over the coming year … whereas expectations for large businesses’ employment intentions were in line with employment growth over the past year”. No hiring mania here – and no pay boom. Indeed, “consumer services firms planned productivity improvements as their primary response to recruitment difficulties”. How hotels, restaurants and bars plan to increase productivity in labour-intensive businesses was not adumbrated.

The conventional thing to say is that low wages reflect low productivity, and that once businesses get more productive wages will rise – and the UK economy will hit liftoff. All these assumptions can be questioned, but the key one is that the “productivity puzzle” will be solved. Yet this is at the heart of the Office for Budget Responsibility’s forecasts for the UK for the rest of this decade – the same set of forecasts used by Mr Osborne to be less stingy in his spending review. But so far there is no sign of a productivity miracle. Since the crash, business investment – the new plants and kit that could drive up productivity – has been disappointing. More Britons have moved into self-employment since the crash, keeping themselves sort-of busy even if not as highly paid. It may be that the decade since the crash marks an adjustment in the labour market as significant as that overseen by Thatcher: an even more flexible workforce, but not a more secure one. As the Bank of England and the Resolution Foundation have argued this week, it would be prudent to plan for what happens if neither productivity nor wages rise. Mr Osborne’s preferred option of expecting the best for many years to come would surely earn Ebenezer’s ire. And for once Mr Scrooge would be quite right.


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