UK's hot and cold labour market

So today's labour market stats paint a seemingly contradictory and confusing picture of the economic health of the nation.

On the one hand, we should say a big hello to booming Britain, as unemployment in the three months to the end of August enjoyed its biggest ever one-year fall, of 538,000 to less than two million.

On the other, the depressed UK still seems to be with us, since earnings in August rose 0.7% including bonuses, compared with an inflation rate at the time of 1.5% (though CPI inflation has fallen a bit since).

As for the unemployment rate, it is back at 6%, the lowest level since 2008, in the relatively early phase of our hideous Great Recession - and down from a peak of well over 8% during that flat year from mid 2011 to mid 2012.

So what is going on? How can there be such demand for people while those in jobs apparently continue to get poorer (in real terms, or after adjusting our tiny pay rises for the impact of inflation)?

And to be clear, the argument that none of the new jobs are "proper" is baloney.

Many may be on very insecure zero-hours contracts, with no guarantee of continued employment much beyond the next sneeze.

But full-time employment rose 422,000 over the year, versus an increase in part-time roles of just 62,000 and in self-employment just a fraction under 280,000.

As for the overall employment rate, that is a heady 73%, just an amuse-bouche lighter than its all-time peak in early 2005 of 73.2%.

So how can we have a labour market that is simultaneously soaring and sagging, both recruiting and refusing pay rises?

There is, of course, a degree of causality here: employment creation would be less robust if people were pricier.

But a basic law of supply and demand says that as available supply diminishes - as it has apparently been doing in the case of the unemployed who want to work - prices, or in this case wages, should rise, so long as demand does not fall.

Woeful worldview

So has one of the few economic laws of Newtonian certainty been exploded? Is it a new immutable law of nature that we in the UK and rich west are doomed to suffer creeping inexorable impoverishment?

There may be a little in that dismal Weltanschauung.

But something else is probably happening.

First, the rise in earnings has been depressed a bit by a change in the shape and composition of the labour force.

It has been getting younger, with the unemployment rate among 16-to-24-year-olds falling from 21.3% to a still-high 16% (about time, you may say).

And the young unemployed tend to be paid so little, sadly, that their advent may have depressed the earnings index for everyone.

Second, the available pool of labour is probably much bigger than the official figure of just two million unemployed.

There are a further nine million people who are classed as economically inactive, who in an official sense are neither in work nor available to work.

And their number was actually swelled by 113,000 compared with the previous three months.

However, some of those, perhaps many of them, may well be ready, willing and able to work in the right circumstances.

And then there are actual and potential immigrants, in the European Union's single market for jobs.

So the eurozone's current slump swells the pool of skilled and unskilled people able to work in the UK, if demand from our employers exists.

By way of illustration, 223,000 non-UK nationals obtained work in Britain over the past year - which you might see as part of the story of UKIP's popularity.

What is more, some proportion of the UK's 4.5-million-and-rising legion of self-employed are reluctantly self-employed - and would much rather work for someone else if the opportunity were to arise.

And a similar tale of wishing and hoping for full time work can be told of 8.3 million part-time workers.

So the available supply of labour is probably massively bigger than those officially classed as unemployed.

No wonder wages are rising so insipidly.

And another thing.

With the eurozone flatlining and China by no means the force of nature it was, British employers' demand for people is bound to be past its peak.

So although the record fall in unemployment is spectacularly good news, the anaemic price of labour tells us something important about the recent past and possibly our immediate future - namely that we should not bank on this economic recovery making us feel a lot richer any time soon.

But if you are a borrower (not a bruised saver) looking for a silver lining, the moment when the Bank of England increases interest rates has probably been delayed until well into next year.