Feeling bad despite the jobs figures

One of the big puzzles raised by any analysis of changes in the labour market has been solved. The puzzle was why Britain's recovery did not create new jobs. Despite more than two years of rising output, the number of people in employment stayed flat, according to one of the two important measures.

Now the puzzle is solved, at least partially: the numbers, apparently, were miscounted. Revisions going back to 1991 published yesterday showed that the number of jobs has in fact been rising since early 1993. The Department of Employment's wizard team of statisticians found that they had been undercounting the number of people employed in the construction industry, to the tune of 120,000 by the end of last year.

So Britain's recovery has helped the jobless figures after all. Unemployment has fallen for the past 13 months, partly because of job creation and partly because the number of people ``economically active'' - that is, in or looking for jobs - has shrunk.

However, the solution to one puzzle raises another, one which is addressed by a new report from the Employment Policy Institute. If there have been more jobs created, then why on earth has there been no feel-good factor?

The report dismisses some possible explanations. One is that wages have been rising at a much slower pace than in the recent past. So they have, but inflation has been lower too. The growth in inflation-adjusted earnings has been pretty stable, rising between 1-4 per cent every year. Recent research by the Department of Employment has confirmed that unemployment has not had much effect on real earnings.

A second explanation for the absence of warm, cosy feelings about the recovery has been the theory that such new jobs as there have been are ``McJobs'' - ill-paid, often part-time service sector work. The Employment Policy Institute knocks down this theory too. It reports that the spread of new jobs has been broad, with many in higher paid, white collar fields. The fastest growing area of employment since late 1993 has been banking, finance and business services.

The conclusion of the report is that the big change in the labour market has been the spread of flexibility - flexibility for employers that is, which translates into insecurity for employees.

Type of job seems to be less important than stability of employment for developing a feelgood factor. Many professionals who used to have almost complete security of tenure have been forcibly switched to fixed-term contracts, contracted out or plain sacked and have had to hunt for another job.

Survey evidence suggests that as much as half the workforce last year felt insecure in their present employment. This points to profound long- term changes in people's economic behaviour - less spending and more saving. It remains to be seen whether this is a permanent phenomenon, of course, but at this point the evidence seems to be to the affirmative. The Chancellor, Kenneth Clarke, may well be right when he suggests the feel-good factor has gone for good. If he is, if the Government really has succeeded in permanently changing the labour market, then the implications for financial markets are dramatic.

From Porsches to Peps in just a few years - no wonder feel-good has been the missing ingredient in this recovery.