Wednesday, February 17, 2010

Jobs Haircut

The other alternative

Yesterday Tyler had a haircut. As usual he went to a shop owned and staffed by the Surrey Italians, one of a small local chain that's operated here for decades. But for the first time ever, his hair was cut by Il Padrone, the man who set up and owns the biz. Was there a problem?

"Certainly there's a problem. Our takings are down 30%, the landlords won't cut the rent, and our bills are going through the roof."

"30%? But why are your takings down that much? Surely people always need haircuts."

"Yes, but we used to do all the office workers here in town, and they're losing their jobs, or getting moved out to cheaper places. Hundreds have gone. Surely you've seen all the empty shops round here. Things are bad. We're all working part-time."

"Well, at least you're not facing competition from China - I mean, we can't import haircuts."

"What! We don't need to import haircuts. The Chinese hairdressers are coming over here - loads of them - they've just opened a new shop down the road. We simply can't compete."


As all undergraduate economists will know, in international trade theory, haircuts are always quoted as the example of something that cannot be traded internationally - the fact that haircuts are cheap in Shanghai  is supposed to be irrelevant if you live in Guildford.

But once you factor in NuLab-style unrestricted migration, that simple truth no longer holds. And as we've blogged before, it's often the previous generation of immigrants who really feel the pain of fiercer competition from the new migrants.

So what are we to make of today's employment stats? The headlines are grim enough, with both the claimant count and the number of long-term unemployed jumping to a 13-year pre-Lab high - ie both are now worse than they were before Brown's economic miracle got going. But what's going on beneath the headlines is just as worrying.

Over the last 18 months (Q2 2008 to Q4 2009), the number of people in jobs has fallen by 630,000. But at the same time, the number of people of working age has increased by 270,000. So the number of people of working age who don't have a job has shot up by nearly one million.

What's more, even among those who do have jobs, the number only working part-time has increased by 180,000 - ie the number of full-time jobs is down by 810,000. 

Or to put it another way, since the bubble burst, the proportion of the working age population in full-time employment has already fallen from 58.4% to 55.9%.

If we take a longer-term perspective, we can see that the potential labour force expanded rapidly under Labour. The population of working age has increased by 2.7 million, largely reflecting net migration. And until recently, jobs growth has nearly kept pace (up 2.4 million). That's even more jobs growth that we had under the Tories (1.4 million), and far more than during the sclerotic pre-Thatcher 1970s:

The question is though, where do we go from here?

The Tories built the platform for Labour's jobs growth, with their resolution of the union problem and trail-blazing cuts in corporate and income taxes. But that's all history now.

Labour is bequeathing Cam a disastrous jobs legacy, including a hike in the jobs tax (NI going up to 25.8%), and the jobs-destroying revenue-losing 50p income tax rate. On top of which, of course, tens of thousands of Labour's public sector non-jobs will have to be scrapped.

When it comes to incomes and employment, Tyler's hairdressers are not going to be the only ones taking a serious haircut. Whether it's Chinese barbers or higher taxes, the pressure on jobs is back again. And it's going to be with us for years.

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