The UK employment “puzzle”

Scott Sumner has done a post on “The British Miracle: exploding job growth during a recession.

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.

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.

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.

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.

I have no pretense to know what´s behind the “puzzle” (maybe Britmouse can enlighten us), just thought it would be useful to present a comparative illustration. For example the AHW chart shows it´s not “weak pay numbers” that are making a difference (although inflation has been higher in the UK, lowering real wages). The similarities between the UK and US in the NGDP ‘gap’ and average hourly wages are significant. The employment difference is really a puzzle.