Official figures next Wednesday are likely to show that there are around 2.7 million unemployed. That's grim. But it's nothing like as grim as it could be, because viewed from another perspective it is remarkable just how little joblessness there is.
I say this because labour productivity has stopped growing. Since economic activity peaked in 2007Q4, GDP per worker has fallen by 3.4 per cent. If it had continued to rise at the rate it did in the previous 20 years, it would have grown by 8.3 per cent. Labour productivity is therefore 10.8 per cent below its trend level.
To put this another way, if the relationship between GDP and employment in the last four years had been the same as it was in the previous 20, there would now (mathematically speaking) be 3.1 million fewer people in work. If all these had registered as unemployed, there'd be 5.8 million out of work - an unemployment rate of 18.2 per cent. Imagine the political effects of that.
But why has productivity collapsed? One reason is something that happens in most recessions. Firms hoard labour. Rather than sack workers as demand falls, they hang onto them in the hope of an upturn or at least they reduce their hours.
Another reason is that the numbers of under-employed self-employed have increased. Professional workers have become consultants or freelancers, whilst manual workers have become men with vans or odd-job men. Many of these, though, don't work much. Of the 4.1 million self-employed, 1.37 million work fewer than 30 hours per week.
A third possible reason is that the recession did not see merely a fall in demand, but a fall in potential supply – an adverse productivity shock. The precise nature of this shock is unclear. One strong candidate is the slump in bank lending. This has slowed down the extent to which new firms or new establishments can emerge or grow – and a lot of productivity growth comes from this "external restructuring" rather than from incumbents raising their efficiency. Another possibility is that the long-standing dearth of investment opportunities is also a dearth of ways of enhancing aggregate productivity. And related to this, the long fall in business investment - which is 17.5 per cent below its 2007Q4 level - means that some of the capital stock is out-dated and less productive than it could be.
Nobody really knows precisely how much weight to put onto the relative importance of these factors. For equity investors, though, they matter. This because all this points to three very different scenarios:
1. If we have suffered a permanent supply shock, then the economy cannot grow very quickly without generating inflation. Any sign of recovery in demand could therefore quickly lead to higher real interest rates.
2. If the supply shock consists in some combination of a decline in lending and in investment opportunities, then we won't get much of a recovery in demand anyway, as business investment will remain depressed.
3. To the extent that there’s labour hoarding - or to the extent that the decline in banks' willingness to lend is merely cyclical - then an upturn in demand could see the ideal combination for investors, of growth without inflation. This is because firms could respond to higher orders by increasing the utilization of existing labour, rather than by increasing their cost base.
Personally, I wouldn't bet very much on this last possibility - not least because it's not obvious where the pick-up in demand will come from. But it is something for investors to hope for.
The problem is, though, that none of these scenarios would see overall employment rise very much. In this sense, investors have more hope than the unemployed.