The caveats are that the quarterly employment figures are from March to May, while GDP is measured April to June - and subject to revisions.
But the enigma remains. Why, to put it crudely, are we consistently having more jobs and less stuff being produced?
The employment figures are convenient for the Chancellor George Osborne, who can wheel around to different television studios and say, "Nearly 400,000 more are in jobs since we came into office." But all the while, the economy has shrunk by 0.3% since May 2010.
There are three responses to this:
(1) Growth is being underestimated in the statistics. The Office of National Statistics (ONS) constantly revises its forecasts. At the start of the downturn, Q2 2008 GDP growth was first estimated to be 0.2%; the estimate is now -1.3%, a considerable quarterly plunge.
Had policymakers known this at the time, they might have responded differently. This means we might see this quarter's growth revised up in future. The average absolute revision since Q1 2005 has been 0.4%, which means commentators could currently be arguing over the head of a pin. Nonetheless, the gap between GDP and jobs cannot be wholly explained by systemic underestimation.
(2) Post-crash Britain has become unproductive and this is permanent. Most jobs are being created in low productivity sectors, such as retail, while the number of high productivity jobs (in finance and manufacturing for instance) has stagnated. If we continue in the same direction, we will not see a huge rise in productivity. Jobs figures will soon fall.
The logic behind (2) is that much of the growth in the Blair years was financed by easy credit. The crash, and the draining away of credit, has wiped out this output. Now banks are rebuilding their balance sheets, the credit tightening is likely to stay. This restrains the output of credit-intensive companies and dynamic, new firms. The low investment (and resulting slow growth of capital stock) also hits labour productivity. Unless credit eases, productivity will be persistently weaker. This sort of thing happens after most financial crises: supply freezes up. The past year's high inflation shows this. The Bank of England's May Inflation Report shows that Business surveys indicate few firms are working below normal capacity.
(3) This unproductiveness is temporary. The gap between output and jobs can be explained by labour hoarding. Firms have reacted to the slump mostly by holding down wages and trying to keep on employees. Workers are not working to their full potential because there is little demand: firms could produce more stuff, but few would buy it.
Supporters of (3) argue that high inflation doesn't mean there is no capacity in the UK economy: recent high inflation was down to a rise in commodity prices and the VAT increase; it has since dropped. Business surveys are often unreliable and don't account for what happens when demand picks up. The financial crisis doesn't explain everything: look at the USA and Spain. These countries have had much stronger productivity growth. Indeed, Bill Martin and Robert Rowthorn, of Cambridge University, have lent much support to this "temporary" explanation in a May publication. They show that the shift in jobs from high- to low-productivity sectors only amounts to a 1/4 percentage point of the productivity shortfall.
Which is right? The jury is out until we see more evidence. The FT gave a view on the puzzle this morning. I tend towards position (3). Readers can make up their own minds.
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