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SUMMARY
This article briefly considers a few of the changes in the labour market in the last 20 years and how these adjustments relate to the economy in the UK. It acknowledges that, during 2008, the timing of movements in output indicators and labour market statistics differed. To explore this, the economic background to 2008 is discussed, by presenting aggregate economic indicators for a selection of international trade partners and looking at other statistics produced by the Office for National Statistics. Finally, the developments in commodity prices and government policy over the last year are recognised.
The labour market plays an important part in the economy, accounting for over half of the UK's national income. In the three months to June 2008, the share of national income related to the compensation of employees (wages, salaries and employers' social contributions) comprised around 52 per cent of national income (measured as compensation of employees divided by Gross National Income at market prices). Historically, the compensation of employees has accounted for a larger share of national income; nonetheless, it still remains imperative to closely analyse the labour market for macroeconomic purposes.
Labour market position in the economy
The labour market influences aggregate demand through consumption and investment, and is a key component of aggregate supply. As a factor of production in aggregate supply, the levels of employment and jobs in the UK economy represent the inputs required by firms to provide goods and services.
The relationship between macroeconomic indicators and the labour market is complex because of its influence on both supply and demand. However, over the past decade, the positive growth in Gross Domestic Product (GDP) has been accompanied by increasing employment levels. These increases have been made possible by a steady upward trend in labour demand (driven by employers), and just as significantly changes in the labour supply (which can result from population changes, labour market policies and participation rates).1
One of the more recent significant changes in labour supply has been as a result of international migration. Statistics released by the Office for National Statistics (ONS) in August 2008 showed that the population increased by almost 3 per cent between mid-2001 and mid- 2007.2 Net inward migration to the UK played an important...