1. A summary explanation of London’s labour market in the recent recession & recovery (updated November 2011) by Melisa Wickham

2. What the presentations will cover:  Background: GDP, unemployment and employment in the UK and London over the 2008, 1990s and 1980s recessions  Possible explanations: why has a steeper fall in output in the 2008 recession not resulted in worse labour market outcomes when compared to the 1990s and 1980s recessions?  Looking forward: what factors may help maintain the labour market resilience going forward and what factors may hinder it

3. Note: For a more detailed examination and explanations see the main report: ‘Understanding why the labour market impact of the recent recession has been less pronounced so far than in the 1980s and 1990s recessions’. It is not presumed that the full impact of the 2008 financial crisis on the labour market has necessarily been experienced yet.

4. UK Background BACKGROUND

5. UK GDP fell faster, and further, in the 2008 recession than in the 1990s and 1980s recessions -4.7% -2.5% -7.1% Source: ONS, GDP chained volume measure, constant 2006 prices, SA

6. And is recovering much slower than the previous two recessions Source: ONS, GDP chained volume measure, constant 2006 prices, SA

7. But the claimant count rate has not risen as much in the 2008 recession as it did in the 1990s and 1980s recessions: Note: Claimant count denominator = claimant count + WFJ Source: ONS +2.6% points +4.7% points +6.9% points

8. Employee jobs have also not fallen by as much in the 2008 recession as they did in the 1980s & 1990s recessions: Source: LFS, ONS -3.6% -9.4% -6.1%

9. London Background

10. Note: The GVA estimates used here for London are not national statistics, and there are causality issues between the labour market performance and output. Specifically, the past relationship between the labour market and GVA along with the latest ONS labour market statistics (as well as other variables) are used to estimate GVA. What this means is that if London’s labour market has performed relatively better during this recession then it is almost a pre-built condition that the output estimates will also be stronger. These estimates are also often subject to significant revisions Therefore, the London’s GVA estimates shown next should be taken as indicative (and not necessarily definitive) of how output may have performed in London over the recessions.

11. Like the UK, London’s GVA also fell faster in the 2008 recession than in the 1990s recession: Source: GVA at basic prices, constant 2003 prices, Experian UK recession -6.6% -6.3%

12. And like the UK, the claimant count has not risen as much in the 2008 recession as it did in the 1990s and 1980s recessions: Note: Claimant count denominator = claimant count + WFJ Source: ONS +2.2% points +6.3% points +6.6% points

13. Employee jobs have also not fallen by as much in the 2008 recession as they did in the 1990s recession: Source: Nomis -11.6% -2.7%

14. Background summary: Output 1 : UK peak to trough % change UKLondon 2008 recession-7.1-5.9 1990s recession-2.5-4.5 1980s recession-4.7 Output 1 : UK trough to date % change 2 UKLondon 2008 recession+3.1+2.7 1990s recession+3.8+1.2 1980s recession+5.6 Claimant count: UK GDP peak to trough % point change UKLondon 2008 recession+2.3+1.6 1990s recession+2.8+3.7 1980s recession+3.1+2.0 Claimant count: UK GDP trough to date % point change 2 UKLondon 2008 recession+0.2+0.6 1990s recession+1.5+2.6 1980s recession+3.0+2.9 Employee jobs: UK GDP peak to trough % change UKLondon 2008 recession-2.0 1990s recession-3.3-6.5 Employee jobs: UK GDP trough to date % change 3 UKLondon 2008 recession-1.6-0.6 1990s recession-2.4-5.1 1 London figures are derived from Experian’s regional GVA estimates. UK figures are derived from ONS GDP estimates. 2 From UK output peak to fourteen quarters after for UK data and thirteen quarters after for London data 3 From UK output peak to thirteen quarters after.

15. Why?

16. Summary of analysis of possible explanations: Possible explanations Likely contribution to labour market strength during the 2008 recession so far Reduction in relative wagesHigh Strong corporate profitability and low rate of business failuresHigh Growth in the public sectorHigh Labour market structural changeMedium Reduction in working hoursMedium Less economic structural changeMedium Measurement errorLow

17. Have workers accepted larger pay cuts/smaller pay rises to reduce their risks of unemployment? Reduction in relative wages

18. Reduction in relative wages Real unit wage costs Source: ONS (ROYJ, MGRN, MGRZ, ABML), GLA Economics calculation

19. Source: IMF Reduction in relative wages Relative unit labour costs

20. Strong corporate profitability and low rate of business failures

21. Strong corporate profitability and low rate of business failures Corporate profits 1990s peak 2008 peak Source: PSNFC net rate of return (%, SA), ONS

22. Strong corporate profitability and low rate of business failures Business failures +97% +57% +105% Note: Historic business failures are based on data for compulsory liquidations, creditors’ voluntary liquidations, administrative receiverships, administrative orders and company voluntary arrangements from The Insolvency Service

23. Has public sector employment mitigated the falls in total employment ?

24. Source: Workforce Jobs, ONS Growth in public sector

25. Note: ‘Other public sector’ includes financial corporations. In the timeframe above, RBoS and Lloyds were included in the 3 rd quarter from UK output peak (2008 Q4). Northern Rock was included prior to the GDP peak. Source: ONS

26. Growth in public sector Note: Public sector excl. publicly owned financial corporations has been calculated by subtracting the increase in total public sector between 2008 Q3 and 2008 Q4 from total public sector employment statistics from 2008 Q4 onwards. Source: ONS, GLA Economics calculations

27. Looking forward

28. Factors that are likely to support the labour market further as the economy grows: Reduced relative wages Strong corporate profitability and low business failures Lower economic structural change

29. Factors that may slow any improvement in the labour market as the economy grows: Reduced working hours Labour market structural change Reductions in public sector employment

30. END For a more detailed examination and explanations see the main report: ‘Working Paper 44: London’s labour market in the recent recession’ by GLA Economics.

31. ANY QUESTIONS