Does the ‘productivity puzzle’ signal the dawn of a new jobs market?

Figures released this week show that unemployment decreased by 13,000 overall in the three months to December 2012 while employment rose by 154,000. This means that despite the economy shrinking by 0.3% in the same time period, we now have the highest employment rate since records began in 1971!

So what’s going on here? Employment rises yet the economy stays flat, unemployment drops but yet there are still 1,700 people applying for a single job at Costa coffee?!

This is a question economists have labelled the ‘productivity puzzle’ – how can productivity be flat, or reduce, while employment rises?

One answer is that wages are decreasing in real terms (i.e. increasing at a lower rate of inflation) squeezing pressured households ever more each month. Research by the House of Commons Library released this week shows that wages have decreased by an average of £1,226 a year since 2010 – that’s £24 a week.

There is also a very high number of people working part-time jobs – over 8 million in fact – a third of the workforce. And the number of people working two or three different jobs in “freelance” fashion has also increased by 40,000 to over 1.1 million in 2012.

So do these figures suggest that there has been a fundamental change in the UK job market?

While unemployment decreased last year, youth unemployment rose another 11,000. This could suggest that older workers have the confidence and the skills to be able to work several positions in a “freelance” style, whereas new entrants to the job market are still pursuing the more traditional forms of employment to gain experience.

However, this figure could also suggest that companies have learned their lesson from the last recession and are actually hanging on to their workforce. In previous recessions, businesses attempted to save money by making large parts of their workforce redundant, only to be stung once the market started growing once more.

What do you think: Is the UK job market changing towards more freelance-style work or is it simply that many of us are hanging on to jobs and staff for as long as possible?

If you’re a young person worried about a growing gap in your CV, get in touch with careers services like the National Careers Service, StudentGems or the Student Room for personalised career advice.

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