We would be celebrating our jobs mir­a­cle but for its low-wage na­ture

The Sunday Telegraph - Money & Business - - Business - JEREMY WARNER

The Gov­ern­ment is in a state of ap­par­ent, lead­er­less paral­y­sis, the econ­omy is weak­en­ing, and Brexit is stalling. Yet af­ter an­other dis­as­trous week for Bri­tain’s be­lea­guered Prime Min­is­ter, there is at least one thing from which she can draw com­fort, and not a lit­tle pride; Bri­tain’s re­mark­able job-cre­at­ing ma­chine is still fir­ing away on all cylin­ders re­gard­less, with very few signs of slow­ing down.

At 4.5pc, the un­em­ploy­ment rate is close to an all-time low; bet­ter still, labour par­tic­i­pa­tion – that is the per­cent­age of 16- to 64-year-olds in work – is at a record high. Job va­can­cies, as a pro­por­tion of the un­em­ployed, have never been higher.

Whether it be the flex­i­bil­ity of the UK labour mar­ket, wel­fare re­form (in­clud­ing a freeze in work­ing-age ben­e­fits), gen­er­ous ma­ter­nity leave or the ad­vent of free child­care, some­thing is plainly work­ing – un­like the Gov­ern­ment. Con­trast the sit­u­a­tion in the UK with that of the United States, where labour par­tic­i­pa­tion has in­ex­pli­ca­bly been fall­ing for a decade or more, and you’d think it a cause for ma­jor cel­e­bra­tion.

The fly in the oint­ment, how­ever, is that though more UK cit­i­zens are in work to­day than ever be­fore, they are not get­ting richer. In real terms, av­er­age earn­ings re­main sig­nif­i­cantly be­low their pre-cri­sis peak.

The trou­ble is that full em­ploy­ment is not of it­self suf­fi­cient to make a happy coun­try. The miss­ing in­gre­di­ent is a sense of im­prove­ment and progress, sadly lack­ing for many years now. If ex­pla­na­tion were needed for the Cor­byn surge, stag­na­tion in liv­ing stan­dards pro­vides it in spades.

Bri­tain is one of the world’s rich­est na­tions, yet to its great shame too many of its cit­i­zens are stuck in low-wage em­ploy­ment. Our low-wage econ­omy has cre­ated a dou­ble prob­lem; first it has re­duced the in­cen­tives to in­vest and au­to­mate, and se­cond it has, by mak­ing peo­ple re­liant on wel­fare for top-up pay­ments, acted as a state sub­sidy to cor­po­rate profits. Too many live out a mis­er­able, hand-to-mouth ex­is­tence, un­able to save ei­ther for a house or the fu­ture. Theresa May touched on some of these dis­con­tents in her party con­fer­ence speech – when you could hear it – but though she was good on the di­ag­no­sis, she was woe­fully short on so­lu­tions.

To date, the only an­swer Western gov­ern­ments have man­aged is the statu­tory min­i­mum wage. This has proved a suc­cess in some re­spects; it doesn’t seem to have dam­aged em­ploy­ment much, but it has raised earn­ings at the bot­tom of the scale. Yet the pol­icy also suf­fers from a ma­jor draw­back which has com­pounded the low-wage prob­lem. It’s the same with all price con­trols; if a floor or ceil­ing is set, prices will grav­i­tate to those lev­els. The min­i­mum wage has be­come the go­ing rate for all man­ner of em­ploy­ment, and thereby un­doubt­edly acted to de­press wages for what ought to be rel­a­tively skilled forms of work such as care for the el­derly. I don’t pre­tend to have so­lu­tions ei­ther; I’m hop­ing the labour mar­ket is at last tight enough to reignite the “Phillips Curve” – flat­tened by glob­al­i­sa­tion – and will start rais­ing wages of its own ac­cord.

Wwhat­ever the an­swer, we had bet­ter come up with some­thing bet­ter than min­i­mum wages, and fast, or last week’s Tory party tra­vails will look like just the warm-up act.

Trump’s mar­ket delir­ium

Make your mind up, Don­ald. Ahead of his elec­tion as US pres­i­dent, Don­ald Trump would rou­tinely ac­cuse Janet Yellen, chair­man of the Fed­eral Re­serve, of be­ing in the pay of the Democrats, of be­ing “more po­lit­i­cal than sec­re­tary Clin­ton”, and of ramp­ing up the stock mar­ket for the ben­e­fit of his op­po­nents. “She should be ashamed of her­self,” he said, adding that he would most likely re­place her if elected. But that was then, and as with so much else, he’s now com­pletely flipflopped. He loves her, so much so that he’s ac­tively con­sid­er­ing re­hir­ing her for a se­cond term. Those very same low in­ter­est rates he once con­demned he now rather likes, and he just adores the soar­away stock mar­ket, which he re­gards as not so much the re­sult of cen­tral bank juic­ing any longer but as val­i­da­tion of his own pres­i­dency.

It is there­fore quite odd to read that he has also been court­ing the hawk­ish for­mer Fed gover­nor, Kevin Warsh, for the job. Warsh thinks in­ter­est rates are too low, and he wor­ries about the ef­fects of ul­tra loose mon­e­tary pol­icy on as­set prices. He is in a sense the very re­verse of Yellen. There are oth­ers in the frame too, but there’s no point try­ing to dou­ble guess Trump; much de­pends on his mood on the day.

Good luck to who­ever gets the job, for it’s go­ing to be some­thing of a poi­soned chal­ice. It’s not just bat­ting away Trump, who threat­ens to “do a Nixon” in the run-up to the next elec­tion, and pres­surise who­ever he chooses to keep rates as low as pos­si­ble.

There’s also in the mean­time the del­i­cate busi­ness to nav­i­gate of re­turn­ing mon­e­tary con­di­tions to a sem­blance of nor­mal­ity.

The buoy­ant stock mar­kets that Trump so much loves are in large mea­sure the re­sult of years of cen­tral bank money print­ing. Re­mov­ing this with­out up­set­ting the ap­ple cart will take judg­ment and skill. In the 10 years since the fi­nan­cial cri­sis, the com­bined bal­ance sheet value of the ma­jor cen­tral banks – the Fed­eral Re­serve, the Euro­pean Cen­tral Bank, the Bank of Ja­pan and the Bank of Eng­land, has risen from less than $7 tril­lion (£5.4 tril­lion) to more than $20 tril­lion.

The Bank of Eng­land looks al­most cow­ardly com­pared with the oth­ers, hav­ing ex­panded its bal­ance sheet to “just” 20pc of GDP. The Bank of Ja­pan is ap­proach­ing 100pc, and the ECB 40pc. In any case, mar­kets have been doped to the point of delir­ium. When the drug is with­drawn, what then?

‘Too many live out a mis­er­able ex­is­tence, un­able to save for a house or the fu­ture’

Flex­i­bil­ity of­fered by such com­pa­nies as De­liv­eroo is one fac­tor that sup­ports the job mar­ket

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