The endlessly perplexing British economy continues to post bizarre jobs numbers:
The employment numbers continue to be surprisingly strong, with a rise of 154,000 to 29.73 million in the October-December 2012 period, and a huge 584,000 increase over 12 months. Interestingly, the rise in employment was more than accounted for by an increase in full-time employment of 197,000 in the latest three months, with part-time employment down 43,000.
To put that in perspective for American readers, that would be the equivalent of 2.9 million jobs over 12 months in the US, far more than we’ve actually be able to generate. (America has roughly 5 times the population of the UK.)
How did this jobs miracle happen? Well let’s start with the fact that it may not have happened, the data might be wrong. After all, RGDP has been flat, and Britain has been in recession during much of this time.
If it did happen, this might be one reason why:
Pay continues to be weak, up just 1.4% over the past year. More here.
If this refers to hourly nominal wages, it might help explain the jobs gains. If it’s not hourly data, it’s meaningless.
However NGDP growth also seems to have been slow. I say “seems” because Europe appears incapable of creating a St Louis Fred-type data set that doesn’t require a PhD in computer science to navigate. And then there’s the question of whether the Brits even know how to calculate NGDP; last time I looked they calculated RGDP one quarter before NGDP, which is, well, mathematically impossible.
So if it’s not NGDP, what is the explanation? Probably a combination of things. For instance, falling North Sea oil output diverts production from areas using very few workers per dollar of NGDP, to areas using lots of workers per dollar of NGDP.
NGDP, hourly nominal wages, and employment are the key macro variables. The goal is to stabilize employment growth (or more precisely to prevent suboptimal employment fluctuations due to sticky wages.) Stable NGDP growth helps, but is not perfect. In any case the UK could use a bit more monetary stimulus—it’s a pity that only three of their nine monetary policymakers understand that fact:
Also yesterday, three members of the Bank of England’s monetary policy committee – Sir Mervyn King, Paul Fisher and David Miles – voted to increase quantitative easing by £25 billion. This was a surprise. More here.
That doesn’t bode well for Mark Carney.
PS. Keynesian models are completely silent on the question of how much real output we can expect from a given rise in employment. That’s the supply-side of the economy, which the Keynesian multiplier model does not even attempt to explain.
Keep this in mind when you read prominent Keynesians telling us about the impact of the so-called “austerity” program adopted by the Cameron government. They aren’t even addressing the real puzzle–why so many jobs?