Summary
For whatever reason, UK employers appear to have been less willing to reduce labour inputs in line with falling production than their US counterparts, Further, US companies have reacted to the challenges of recession by slashing jobs and pushing up productivity while UK productivity has actually fallen, The UK-US comparison shows a very different labour market reaction to the recession but broader international comparisons shown an even wider range of experience. While the November annual growth rate is distorted by the reduction in VAT (lower VAT in November 2009 compared with November 2008 served to reduce prices and therefore sales values), this does not detract from the strength of the December sales data, It seems likely that consumers were taking advantage of lower VAT rates ahead of it being increased back to 17.5% in January.
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The Uk Labour Market Conundrum
Although the UK economy has just gone through the deepest recession, defined in terms of the GDP contraction, since the 1930s, the impact on the labour market has not been anywhere near as severe as might have been expected. As recently as May 2009 the consensus forecast for Claimant Count Unemployment in 2009Q4 was 2.1 million, yet the outturn has been barely over 1.7 million. The surprise labour market resilience also shows up in the employment data. The chart on the right shows comparative indices of ILO employment across the current and last two major recessions in the UK. In both the early 80s and early 90s, UK employment continued to decline for approximately three years after the cyclical peak. The 2009Q3 data, however, shows that employment has already levelled off this time around. Although this is just a single observation, which will be subject to revision, it is consistent with movements in the claimant count unemployment data (which is an administrative count and not subject to revision) which has increased more slowly than expected and actually fell in November. The broader ILO definition of unemployment has displayed a similar levelling off.
The sharp fall in GDP com...See the full content of this document
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