More accident than design
The government is taking credit for today's welcome and surprising fall in unemployment - are they entitled to? The answer appears to be more yes than no. But some of the most important help the government has provided the labour market has been by accident more than design.
A quick reminder of how surprising this all is. The economy has shrunk by 6% since the recession began - one of the sharpest recessions since the 1930s. On past experience, you would expect employment to have fallen rather more than output - in the 1990s, for example, the economy shrank by 2.5%, but employment fell by 3.4%.
But this time, employment has not even fallen as much as in the 1990s. Overall, employment has fallen by around 2% - a fraction of the fall in output.
On the broader measure, unemployment in the three months to November stood at 2.46m, the first quarterly fall in 18 months, and 450,000 less than the government and other predicted a year ago.
Labour says the difference this time is down to government policies - policies which, as it happens, the Conservatives opposed. As ever, the facts are not so clear-cut. But it's such an important question for the campaign I thought it worth having a long hard look. You'll see the results on the main UK news bulletins tonight.
As I discussed last month, employer behaviour is a big piece of the explanation. Companies are hoarding labour in this downturn - rather more than in the past. This is not all down to the government - far from it.
In fact, the biggest factor was that companies came into this recession with higher levels of profitability than in the past. There were fewer companies who had to rush into massive job cuts - simply to keep their heads above water.
The sheer level of government stimulus has played a part in keeping profitability up through 2009 - another stark contrast with the early 90s and early 80s. But I'm not talking here about the very modest stimulus package introduced in November 2008. I'm talking about the massive and very rapid cut in interest rates - not possible in past recessions due to the ERM, and the need to bring down inflation.
There's also the fact that the government went into this recession with real spending - and borrowing - much higher as a share of the economy than anyone had really intended. This inadvertent stimulus - driven by an optimistic view of the long-term sustainable growth of the economy - meant that there was more of a cushion for overall demand than there would have been under more "prudent" policies. That's what I mean when I talk about accident rather than design.
But the time to pay initiative has shifted more of the burden of adjustment onto government revenues - rather than company profit. It's hard to get solid figures here, but the Treasury claims that this initiative has let more than 150,000 companies spread tax payments worth more than £3bn.
Anecdotally, I have certainly heard of a lot of small businesses for whom this has made all the difference - though, of course, it doesn't change the bottom line long-term.
There are specific regulatory differences that also seem to have played a role - for example, there's no balance sheet advantage now to kicking workers into early retirement, because the cost-shifting now has to be clearly noted on the bottom line.
More generally, regulations now make it much more onerous for employers to lay off staff. That's hardly the mark of a "flexible" labour market - and it's not being trumpeted by the government today - but I'm sure it has played a role.
Taken together, these regulatory differences have helped transform the experience of this recession for older workers. Last time around, they took the brunt of the adjustment - now it's the young who are getting it in the neck.
However, employer hoarding isn't the whole story. As hundreds of thousands of people will testify, companies have laid off workers on a grand scale in the past year - far more than you might guess from the headline change in unemployment. The difference is explained by a dramatic rise in part-time working - either female partners are going back into the workforce to make up for the lost pay packet, or those full-time workers have taken part-time work instead of staying on the unemployment rolls.
That big rise in part-time work explains why hours have fallen more sharply in this recession than in the last. Full-timers are working shorter hours too, but, interestingly, according to Professor Paul Gregg at the University of Bristol, no more than in the past.
But here's the big thing: people are exiting unemployment faster than in past recessions. We have seen a much smaller rise in inactivity and long term unemployment than everyone - including the government - expected.
I think there are many reasons for this - including the fact that people were gloomier going into this downturn, and perhaps more willing to take lower paid work than in the past. But the tax and benefit system does appear to have helped.
In relative terms, unemployment benefits - especially for families without kids - are lower than they were in past recessions, and it is harder to qualify for incapacity benefit. Whereas - whatever you think about the bureaucratic downsides of tax credits, in a recession they do make it more attractive for people to take lower paid work. According to the Treasury, in 2008/9, 355,000 families whose income had fallen received on average an extra £35 per week in tax credits.
Job centres have changed, too, though this contribution is harder to gauge. From my own visit to a job centre in Hertford this week I can certainly attest that they are more "user-friendly" than their 1980s predecessors, where the chairs were chained to the floor and 4-inch screens separated the claimants from the benefit officers. Everyone's a "customer" now, and the system does seem better geared to getting people back into work - even if it's only a short-term job.
Once again - I think the macro aspect is the key here. One of the reasons those job centres have jobs to give is the public sector's kept hiring - the number of jobs in the public sector rose by more than 90,000 between the third quarter of 2008 and the third quarter of 2009.
It's hard to get comparable figures, but in an equivalent period during 1991-92, public sector employment rose by just 6,000. At Hertford, employment in job centres across the district had risen by 60% since the recession began.
Of course, this cannot last. We know that both the spending and the public sector jobs are going to be squeezed in the next few years. In fact, most of the new people working at job centres and the like are on fixed contracts which run out in April of 2011.
There's the rub. The government may be able to claim some credit for the curious behaviour of the labour market in this recession. But - to coin a phrase - we can't go on like this. All of this only adds up if the economy comes back strongly in the next year or two - so that employers can hold on to the workers they've fought to retain, and public borrowing can stop taking so much of the strain.
And, in the meantime, you have younger people taking far more than their fair share of the rise in unemployment that has occurred. It's true that there are full-time students included in the headline figures for youth unemployment.
But many others - drifting between inactivity, casual work, and intermittent school, aren't being counted at all. Professor Gregg thinks the decline in employment among 16-17-year-olds and 16-24-year-olds is storing up huge problems for the future.
So yes, it's good news for all of us - not just the government - that unemployment is flattening out. But we're not out of the woods yet.