LABOUR MARKET

Employment

1.56 There is a conflict of evidence about recent trends in employment. The household-based Labour Force Survey (LFS) shows a rise of over 300,000 in the year to winter 1995/96 (December to February), including an exceptionally large rise of 120,000 in the winter quarter. The employer-based survey shows a rise of only 12,000 between March 1995 and March 1996, with a fall of 74,000 in the first quarter of 1996. The reasons for these large differences are not fully understood, but the LFS data seem more consistent with the continuing fall in unemployment.

Productivity

1.57 On either measure of employment, productivity growth slowed from late 1994 as output growth slowed. The employer-based survey figures imply that GDP per head has grown at a rate of around 1 1/2 per cent since the beginning of 1995, compared with 3 1/4 per cent during 1994. The LFS figures would imply still lower productivity growth. However the deceleration would appear less pronounced if productivity were measured in terms of hours' rather than heads', as a high proportion of the growth in employment in 1995 was in part-time jobs. The LFS shows hours worked increasing by less than 1/2 per cent over the year to winter 1995/96, compared to a 1 1/4 per cent increase in employment. To some extent, the slowing in productivity growth is likely to reflect time lags - employment catching up with the rapid growth of output in 1994. It is also possible that firms have been keeping up recruitment in anticipation of faster growth to come. On either interpretation, productivity is likely to accelerate again as output growth picks up.

Unemployment

1.58 As with employment, there are alternative measures of unemployment. But here the two measures tell a similar story. The quarterly LFS measure fell by 130,000 over the year to winter 1995/96, while the claimant count fell by 180,000 over the same period. Over the six months to May the fall in the claimant count has continued, at an average of 13,000 a month. The claimant count is now over 800,000 below its peak in December 1992 and the LFS measure 655,000 below its peak in winter 1992/93.

Labour supply

1.59 On the LFS data, the fall in unemployment over the past year is much more than accounted for by the rise in employment. This implies that the labour supply, which had been falling because of the large expansion in further and higher education, early retirement and an increase in the number of claimants of invalidity and sickness benefits, is now rising. On the employer-based survey figures, rising employment accounts for very little of the fall in unemployment, implying (perhaps less plausibly) that the labour supply has continued to fall.

1.60 Even if the labour supply has not started to grow already, which seems unlikely, there are further reasons to think that it would certainly do so in the future. Participation in further and higher education is unlikely to go on expanding at the rapid rate of recent years. The population of working age is growing faster, at almost twice the rate of the early 1990s. The medical test for Incapacity Benefit should help to reverse the long-term upward trend in the numbers claiming such benefit. Finally, the continuing improvement in job prospects should increase participation in the labour market.