Labour Market Malaise

In today’s newsletter:

• Unemployment on the rise

• The Nobel Prize winners

• Are Equality, Diversity and Inclusion laws holding Britain back?

This week saw the publication of the latest labour market indicators, and they made depressing reading. Most of the important figures are negative. Employment and vacancies are down, working-age inactivity remains an apparently intractable problem, and unemployment continues its upward creep.

Job losses are particularly noticeable in retailing and hospitality. The likely causes are fairly obvious. A big increase in the national living wage, and its extension to younger people, particularly hits these sectors: a third of all minimum-wage workers work in shops, bars and restaurants. And the recent hike in employer national insurance contributions has brought many part-time workers into the Government’s net, common in these types of jobs, who were previously exempt.

More generally, the Employment Rights Bill, bringing in unfair dismissal from day one on the job, will mean that employers are extremely wary of hiring untried labour market entrants. Restrictions on the use of zero-hours contracts will cut off one means by which employers can mitigate the effect of increasing employment protection, while at the same time reducing job opportunities for students and others who can’t commit to fixed hours.

When the shrinking demand for graduates is coupled with near-record numbers with degrees and higher degrees, even well-qualified young people are finding it hard to get work. All in all, it is unsurprising that unemployment is rising fastest amongst young people, a worrying development. Without a good start in the labour market, you are playing catch-up for the rest of your working life. And it is all too easy for early unemployment to drift into inactivity and permanent welfare dependence.

Although the ONS data refer to a slightly earlier period, self-employment also appears to have again fallen back and remains below the pre-COVID level. Once more, government policy (here in relation to IR35 and the ludicrous demands of the Making Tax Digital scheme) is making the environment for the self-employed much more difficult. This discourages young people from setting out on their own account, or for older people continuing to be economically active – something we badly need with our rapidly ageing population.

The knock-on effects of all this are worrying. At an IFS event this week, Jonathan Haskel pointed out that we are developing ‘sticky inflation’ at rates higher than in other comparable countries. He argued that the ‘natural rate’ of unemployment (that level below which inflation accelerates) has risen as a result of the current government’s growing interference in the labour market. This might send a shiver down the spine of those who remember the days of stagflation – high unemployment, zero growth, and rampaging inflation – in the 1970s. We’re not there yet, but unless we see some change in the government’s stance, we may be heading that way.

Len Shackleton
Editorial and Research Fellow

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IEA Podcast: Managing Editor Daniel Freeman is joined by Editorial Director Kristian Niemietz and Head of Labour Economics Len Shackleton to discuss the Green Party’s wealth tax proposals, rising unemployment figures, and this year’s Nobel Prize winners — IEA YouTube

EDI Nation

• Expansion of EDI bureaucracy has been fuelled by government regulation, not by market forces or rising prejudice

• Growth of EDI undermines meritocracy, replacing fairness and talent with group quotas and targets

• Previous estimates suggest direct public sector EDI costs of £557m a year, with wider costs to the economy potentially in the tens of billions

• New paper calls for rolling back EDI, including scrapping procurement requirements and outlawing quotas

  Full Publication

Alex Morton, author of the report, said:

“Far from reflecting market demand or rising intolerance, EDI has been driven by government policy and quango activism. It is costly, divisive, and undermines meritocracy - one of the pillars of modern economic success. Rolling back state-imposed EDI is essential if Britain is to restore fairness, efficiency, and economic dynamism.”

• Scrap EDI laws to support economy, The Daily Brit, Business Money, Cumbria Times

• Should the UK’s EDI Laws Be Watered Down or Removed to Boost the Economy?, Luxurious Magazine

  A new IEA report reveals how government-driven EDI mandates inflate bureaucratic costs and stifle economic dynamism, urging urgent reform to restore fairness and efficiency in UK workplaces without compromising genuine inclusion.

News and Views

Private sector ‘frozen by pre-Budget jitters’, Economics Fellow Julian Jessop quoted in the Telegraph

Britain’s economy has stalled as private sector bosses have been “frozen” over concerns about what is coming up in the Budget.

Julian Jessop, economics fellow at the Institute of Economic Affairs, said: “There is little to cheer in the latest GDP data.”

Britain’s economy grew by 0.1pc in August following a downwardly revised contraction of 0.1pc in July, meaning activity was flat over the latest two months.

Has the Government Killed the Jobs Market? | Economy Explained, Director of Communications Callum Price, IEA YouTube

Nobody wants rent controls, but we’re getting them anyway, Public Policy Fellow Matthew Lesh writes for The Telegraph

Rent control is the most efficient way known to destroy a city, except for perhaps bombing, or so said Swedish economist Assar Lindbeck. It discourages the development of much-needed new housing, fuels discrimination and black market activity, and limits mobility and choice.

How Do Americans Really Feel About Taxes and Success? - Ep 3 - Land of Opportunity, IEA YouTube

Building a culture of growth is a Nobel cause, Managing Editor Daniel Freeman writes in ConservativeHome

Everyone in British politics, with the possible exception of the Greens, agrees that economic growth is sorely needed.

Since the Great Recession in 2008 real per capita GDP growth in the UK has hovered at an average of 0.5 per cent per year. This is down from an average of 2 per cent in the five decades prior.

DEBATE: Was Margaret Thatcher good for Britain?, Head of Media Reem Ibrahim joined Michael Gove, Peter Hitchens and Suzanne Moore at an UnHerd debate on Monday.

Too many class action lawsuits aren’t helping consumers, IEA report author Stephen Dnes writes in PoliticsHome

If you would be surprised to find that you are involved in a multi-year lawsuit you have never heard of, imagine finding out that you are involved in ten.

Remarkably, that is now true for most British consumers. A little-known class action system currently hosts 655m claims, that is, roughly ten per head. If they are all successful, defendants will need to pay out £134 billion.

So, the seemingly obscure world of the class action is anything but. Where did all these lawsuits come from, and what do they do?

Market Economies Through History: Why They Rise and Fall | IEA Interviews, Managing Editor Daniel Freeman interviews Professor Bas van Bavel, IEA YouTube

Rachel Reeves has been hit by a triple humiliation - ‘she’s killing growth!’, Editorial and Research Fellow Professor Len Shackleton, Daily Express

Len Shackleton, Research Fellow at free market think tank the Institute of Economic Affairs, said: “Employers are extremely wary of taking on untried labour market entrants.”

Blog

Is the wealth tax a left-wing idea?

Institute of Economic Affairs and Kristian Niemietz · Oct 14

Is the wealth tax a left-wing cause?

Read full story