Why More Jobs Are Bad for Uk

Why more jobs may be bad news for British workers

Promising job creation figures look like a symptom of the low wages and falling investment of an imbalanced economy

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Cheap labour in Britain encourages companies to boost output by hiring rather than investment. Photograph: UK Stock Images Ltd/Alamy

Recessions are usually job killers, so the way in which the UK economy has created new jobs at a time when growth has been so weak has baffled the experts. Employment is up even though national output has been flat over the past year.

Economists have been searching high and low for an explanation. Is Britain actually doing a lot better than the official data suggests? If so,the double-dip recession will be revised away in due course.

Has the UK become less efficient, with more people needed to provide the same quantity of goods and services?

It could be the expansion of part-time work – people working 20 hours week when they would actually like to be working 40. Official data last week showed underemployment in the economy has risen by 1 million since the recession began.

Robin Chater, the secretary-general of the Federation of European Employers has a different explanation: labour is dirt cheap in Britain and that encourages firms to boost output by hiring or retaining workers rather than by investing in new plant and machinery.

Since 2005, Chater says, capital replacement has been falling faster in Britain than in any European country. This is confirmed by official figures for investment as a share of national output, which at 13.9% is the lowest since records began in 1955.

"The UK is turning into an old-style third world country with low pay growth for most workers below managerial level, widening pay differentials and poor levels of capital investment," Chater says.

"This has been partly encouraged by the influx of workers from eastern Europe since 2004 – who have been willing to perform many functions at low wage rates that would...