Record UK employment could be hiding economic warning signs - analysis

The UK’s buoyant employment figures could be hiding earning warning signs of an economic downturn, a report published on Monday has suggested.

A record 32.6m people were employed between October and December, according to the Office for National Statistics, while unemployment remained little-changed at 1.36m.

The current unemployment rate of 4% is at its lowest since early 1975.

But academics at the Enterprise Research Centre, which has carried out an analysis of ONS data, said figures were being buoyed by start-ups – and that established firms were already shedding jobs.

The research network found that existing employer-enterprises had seen a faster net loss of jobs in the past two years, only offset by stable but flatlining numbers created by start-ups. Around half of start-ups fail within their first year, however, meaning the UK’s record employment levels “mask a more complex picture of business dynamism on the ground which more closely matches pre-recessionary periods,” the ERC argued.

Mark Hart, professor of entrepreneurship at Aston Business School, said: “Firm-level data can be a useful ‘canary in the mine’ for an impending economic downturn, and this is particularly significant in the context of record employment figures, which could lull policymakers into a false sense of security.

“What’s clear is that established firms are already recording a net loss of jobs. So even if our headline employment figures are being propped up by start-ups creating new jobs, we are already witnessing a severe slowdown in hiring by the established firms that are vital to the health of our economy.”

The ERC analysed the ONS’s Business Structure Database between 1998 and 2018 to establish the annual churn rate among firms. It found that in 2018, this totalled 4.9m jobs, the equivalent to 23% of all private sector employees changing jobs through hiring and firing.

Existing companies created 1.65m jobs last year, but that was outweighed by a combined 2.25m job losses from established firms and companies that exited, the highest number since 2010, the ERC said.