April 23, 2019

Chart of the Week: A new perspective on the booming UK labour market

by Fathom Consulting.

With every monthly release of UK labour market statistics, the employment rate seems to hit a new record high. In that respect the latest data, released last week, did not disappoint. The UK’s working-age employment rate stood at 76.1% in the three months to February 2019. It has never been higher since data were first published almost 50 years ago. The apparent strength of the UK labour market is undoubtedly good news for those who might otherwise have found themselves without work. What is puzzling, however, is the divergent performance of labour and capital. As our chart shows, over the past five years or so, the usually close relationship between labour and capital looks to have broken down. While firms have continued to recruit staff, investment as a share of GDP has stagnated. It seems that there has been a conscious decision to substitute labour for capital. There are at least two reasons why this might have occurred. First, the more widespread use of ‘zero-hours’ contracts, by allowing firms to vary their labour usage at little or no cost, day by day, might have raised the demand for labour relative to capital. Second, Brexit-induced uncertainty might have caused businesses to put major investment decisions on hold, encouraging them to use more labour than might otherwise be the case until that uncertainty is resolved.

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The chart in this article has been created using Chartbook on Datastream. The Chartbook was initially created by Fathom Consulting in 2012 and is now a catalogue of approximately 9000 charts, covering over 170 countries, analysing up-to-date macro and financial data. Whether it is a particular topic, country or variable you are interested in charting, the Chartbook has everything you need. To access Chartbook via Datastream search ‘cbook’.

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