Brexit uncertainty may be nibbling away at the British economy but the jobs market is in seemingly rude health.
Unemployment levels are running at an impressive 44-year low of 3.8 per cent, according to the most recent ONS headcount.
This is an unusual situation, but what also seems odd to many is the year that unemployment was last this low: 1974. For most people the 1970s are a period synonymous with a poor economy, high inflation, employment struggles and strikes.
So what was going on in 1974 to make unemployment so low – and how does it compare to now?
Think of the 1970s and many people envisage this: Piles of rubbish lay uncollected on the streets in the winter of 1978/1979 amid strikes
Jobs for all: ONS figures show that unemployment was very low throughout the 70s before rocketing in the early 80s
Britain’s current four-decade low in unemployment seems to contradict other metrics of the UK’s financial health – gloomy manufacturing and construction surveys, weaker investment and failing high streets.
But the snapshot of the jobs market isn’t black and white.
There are multiple factors contributing to the UK’s jobs ‘miracle’ – such as a self-employment (or some would say ‘zero hours’) boom and a dramatic rise in older workers reflecting state pension age increases. Meanwhile, wage growth – while on the up – remains relatively low.
The health of the economy wasn’t clear-cut either in 1974, when unemployment was last this low.
When we recall the 70s, we often think of nationwide hardship. It is characterised as a decade of strikes, the three-day week, sky-high inflation – and finally, streets strewn with rubbish.
But, economically speaking, it wasn’t all bad – especially not at the start.
Life in the early 70s – why were jobs so strong?
‘Early on in the decade, we had a booming economy,’ says PWC chief economist John Hawksworth when discussing the 1970s.
And that means things weren’t as bad throughout the 1970s as often characterised.
Former British Prime Minister Edward Heath governed between 1970 and 1974
Chris Beauchamp, chief market analyst at IG Group agrees: ‘Lots of people remember the dim and dark back-end of the 70s and their view is coloured by that.
‘But at the start of the decade, we had a period of record low unemployment,’ he says.
The post-war years were characterised by this buoyant jobs market. Between 1945 and 1975 the unemployment rate barely exceeded three or four per cent.
There were two driving forces behind it. Firstly, it was a great period of British manufacturing.
‘People think of the 19th century as the greatest time for British manufacturing, but actually, in the post-war years we had very strong manufacturing levels – in fact the strongest it has ever been,’ Beauchamp says.
And the Government – headed up by Conservative Prime Minister Edward Heath – proactively worked to maintain the country’s position as a global, industrial powerhouse.
|Average GDP growth||2.6%||2%|
|Average salary||£2,168||£29,600 (ONS / ASHE)|
|Average house price||£8,915 (Land Registry)||£229,000 (ONS / Land Registry index)|
|The average price of a pint||14p||£3.69|
Beauchamp explains that the ‘activist’ Government was ‘loyal to the state industries’. Certain policies and a conscious effort to promote British exports helped to buoy the UK’s dominance in this field and therefore support the jobs market.
‘It helped that other major trading partners had been so badly beaten down by the war that they didn’t really begin to eat into the UK’s pre-eminence in manufacturing until the early 70s,’ he adds.
Politicians were particularly keen to ensure people had jobs to go to
Secondly, there was the strength of the trade unions.
Strong representation from the unions meant there was good protection for workers and a company couldn’t get away with shedding large numbers of employees.
What’s more, through much Government and union bargaining, wages were kept low, which meant it wasn’t a huge stretch for companies to take on more staff.
‘The unions being invited into the Government to talk about wages is so alien from what we think about now, but that was the rule,’ Beauchamp notes.
If you fancied splashing the cash in 1974, Ford was happy to tempt you with a Capri
Politicians were particularly keen to ensure people had jobs to go to because they were ‘frightened’ of going back to the extreme unemployment levels Britain suffered through in the 30s, Hawksworth adds.
It was only towards the end of the decade when the trade unions started to push Government for wage increases after years of pay freezes that there was a huge fallout, and the troubles which colour most people’s perception of the 70s really kicked off.
What went wrong in the 70s?
In 1973 the UK was hit by an oil crisis that sent the cost of the black stuff soaring.
It was a fallout from the Yom Kippur War: Oil giant Opec (which at the time dominated around 60 per cent of the world’s oil market) stopped supply to the West.
Firms started to lay off workers, wages didn’t rise to keep pace with rocketing inflation and it’s easy to see how discontent brimmed
Before long, oil prices in the UK had quadrupled, pulling the rug out from beneath many of its biggest companies.
‘It goes back to that classic idea that higher oil prices hurt economic growth,’ says Beauchamp. ‘When you jack prices up by the amount they did in the 70s, of course it does!
‘Firms started to lay off workers, wages didn’t rise to keep pace with rocketing inflation and it’s easy to see how discontent brimmed and Britain ended up with national strikes.’
It all started with the miners strike in 1974.
Those who lived through the strikes will vividly remember the severity of it and the frequent outbreaks of violence and tensions mounted
Wives supported the strike action by demonstrating outside the Houses of Parliament
In the years that followed, the record-low unemployment levels were ‘shattered’.
And inflation swelled as well, from low single digits to around 24 per cent by 1975 – the highest level in decades.
The year when wages rose almost 30%
A Treasury to a question to then Chancellor Gordon Brown in 2004, published by Hansard, reveals how wages shot up in the 70s.
In 1974, New Earnings Survey data survey showed the average full-time weekly wages as £41.70.
In 1975, this had jumped to £54 – putting wage inflation at 29.5% that year.
The Opec crisis is often seen as the point at which Britain woke up to its vulnerability to fundamental shifts in the global economy.
It was also the first time the country experienced ‘stagflation’ – rising inflation and rising unemployment at the same time – which eventually led to the total unwinding of the post-war consensus on how to run the economy.
But life got worse a few years later when, in 1978, a wage dispute between Labour Prime Minister James Callaghan and the unions culminated in the Winter of Discontent.
Streets were lined with litter, some dead went unburied and parents rushed to feed their own ill children in hospital as everyone from rubbish collectors to grave diggers and nurses went out on strike.
Litter mounted on the streets during the Winter of Discontent as collectors went on strike
Gravediggers joined the strike action too, meaning that vans were filled with bodies to be embalmed and stored in disused factories
Still, the 70s ‘wasn’t a disaster’ on the jobs front, Hawksworth says, because Government was able to keep a handle on unemployment, keeping it mostly under 6 per cent.
GDP growth in the 70s actually remained at around 2.6 per cent, which is much higher than the 2 per cent average we’ve seen in Britain for the last 30 years.
‘It had been Government policy to protect jobs, so we didn’t see the same sort devastating job losses in the 70s that we suffered in the 80s,’ Hawksworth explains.
‘When manufacturing got into trouble in those later years, however, Thatcher’s Government refused to protect employment in the same way and jobs were allowed to go to the wall.’
In the early 80s, unemployment rocketed to around 12 per cent.
Is today’s low unemployment cause for concern?
The jobs numbers in 2019 may look wonderful on the surface, but Beauchamp and Hawksworth both caution that weak wage growth and poor productivity make for flies in the ointment.
With inflation stripped out, wage growth came in at 1.4 per cent last month, which is still below pre-financial crash levels.
‘Pay growth is the weakest since the Napoleonic wars,’ Beauchamp says.
What’s more, some experts are concerned that because we have such low levels of unemployment now, things can only get worse.
Strikes and nationwide discontent colours most people’s memory of the 70s, although the jobs market remained relatively buoyant, which supported a rise in home ownership
‘We’ve had a long, but fairly anaemic, period of growth,’ Beauchamp says. ‘There’s a sense now in the UK, as there is in the US, that once unemployment starts to tick up from these low levels, that’s a sign that the next recession may be starting to approach.’
‘So long as there isn’t some sort of disastrous no-deal Brexit, unemployment numbers will remain pretty good. But they can’t go much lower than this
‘It’s when things are at their best that everyone should start to worry,’ he adds. ‘You wonder how long this can go on.’
Looking ahead, Hawksworth says: ‘We’ve got an economy that’s good in parts, but since the 2016 Brexit vote, investors have been more cautious.
‘So long as there isn’t some sort of disastrous no-deal Brexit, unemployment numbers will remain pretty good. But they can’t go much lower than this.’
Home ownership in the early 70s
Nationwide’s index shows how house prices rocketed from the late 1970s
As for home ownership in the early 70s, the average house cost about £8,900, according to the Land Registry. Weekly wages averaged £41.70, which equates to £2,168 annually.
This means that the average home cost approximately 4 times typical annual earnings.
Today, comparing the ONS’s current average UK house price figure of £229,000 and the median full-time earnings of £29,600 puts the current ratio at almost 8.
While the 1974 figure sounds like a much better wages-to-house-price multiple than most house buyers face today, there was not nearly as much credit available.
Most people were only allowed to borrow around twice their earnings, compared to four times and more now.
The lack of credit, along with a strong supply of homes – in line with the manufacturing boom – helped keep a lid on house prices.
However, house prices had been rising at a fair clip through the early 1970s, with the average UK home more than doubling from £3,920 in 1970. Albeit, inflation and wage growth were much higher in the 1970s than now – with full-time weekly earnings rising 29.5 per cent between 1974 and 75.
That said, home ownership wasn’t quite the totem it is perceived to be now. Far fewer people had their own homes as there was no right to buy council housing.
‘There were many more council houses in the system too,’ Beauchamp explains.
By 1974, the average house price had risen to £9,928, and by the end of the decade, the expansion of the mortgage market drove prices to nearer £20,000.