Solving the vacancies puzzle

Beginning in early February, readers of the Times, Sunday Times and Daily Mail have enjoyed some exceptional access to Government thinking about the state of the labour market. Britain, according to the Times, is "enjoying an employment bonanza" with the labour market outperforming "the boom days of 1988". But seen through the distorting lens of these conservative minded newspapers, a strongly recovering labour market co-existing with significant numbers of unemployed people means one thing: "workshy" claimants have an "in-bred anti-work culture" that calls for an increasingly aggressive get-tough attitude by the Government.

So, in early March when the Treasury published an interpretation of vacancy data, some alarm bells sounded for those observers who fear that the Government is about to make some policy errors.

Firstly the facts. Jobs growth has been strong during this Government's term of office. Almost 300,000 additional jobs were created in the most recent year - a spell immediately following the months when GDP dipped towards zero during the last quarter of 1998. Indeed, most of the 8-year period since the recession ended in late 1992 has seen Britain enjoy a fairly consistent pattern of jobs growth.

However, the regional distribution of jobs growth has been extremely uneven - with London, the South East and East Anglia taking the lion's share - and regions like the North of England, Merseyside and the West of Scotland actually losing jobs during the course of the last year.

However, what has been quite startling during the last year has been the sudden growth in notified vacancies. Whilst the employed labour force grew by about 1%, the number of vacancies leaped by 34%. Over the last 3 years, vacancy totals rose gently: from 237,900 in December 1997, to 249,800 in December 1998 but then jumped by 85,000 to 335,000 in December 1999. During the last 12 months, in regions like the North East, the number of vacancies more than doubled.

So what is going on?

Employment Service vacancy data are not a very reliable indicator. They are simply a snapshot of unfilled vacancies at a particular date and are notoriously prone to administrative action. The figures will have risen for example because successful promotion of New Deal has increased the Employment Service's market share of vacancy notifications. Additionally, any backlog of successfully filled or withdrawn vacancies that have not been cleared down by the ES from their systems count as unfilled vacancies. And now we learn that in April 1999 - precisely the moment when the data started to rise sharply - the ES introduced a new way of handling nationally notified vacancies which could lead to double counting.

Normally this stuff only really matters to statistics junkies. But when the Treasury decides to estimate the global total of vacancies in the economy by applying a multiplier of three to the unfilled notified vacancies total - and does so uniformly for every region in the country - some misleading conclusions result. In short, the Treasury could be dramatically over-stating growth in whole-economy vacancies.

As we have argued in this journal previously, the rough and ready multiplier has not been changed since the late 1980s despite enormous changes in the way in which the Employment Service deals with employers - and vice versa! In this edition - using LFS data - we show that each month across the whole economy there are about 560,000 people moving into vacant jobs. Only about a third of all these are filled by unemployed people: nearly half are filled by job changers (moving from one firm to another) whilst new entrants and job changers (with the same employer) account for another 15% to 20%.

Most significantly, we show that the Treasury's threefold multiplier is not accurate for all regions. Measuring jobs filled (not vacancies) the market share of the Employment Service is 20% and they fill about two thirds of vacancies received. In tight labour markets (e.g. the South East) its share of jobs filled drops to 14% (1 in 7) whilst in slack labour markets (e.g. the West of Scotland) it is 34% (1 in 3).

So what do we conclude?

Firstly, it is a quite simply wrong to believe that Jobcentre vacancies represent one third of all vacancies and therefore there are enough vacancies, in every area, for all the claimant unemployed to get a job. The labour market is much too complex for such a simple juxtaposition to be a guide to policy.

Secondly, unemployed people, measured by either the claimant count or the ILO definitions, make up a minority of those entering work from non-work. The substantial numbers entering work from education and from family care need to be considered in any analysis. Indeed, in the case of the latter group, those who are lone parents may be moving from Welfare to Work, which is one of the objects of Government policy.

Thirdly, the Jobcentre vacancy series is compromised by administrative factors making it of very limited use in economic analysis.

The evidence shows that skill shortages and mismatches, occupational and geographical, remain a significant blockage to unemployed people taking a higher share of available vacancies.

Bizarrely, the Government knows this privately. But publicly, it lets its strategy be seen through the perversely distorted views of newspapers peddling their tired-out miserable prejudices.