Job insecurity at the end of the 20th century has given way to income insecurity at the start of the 21st. This insecurity is an important part of the explanation for recent patterns in jobs and pay. The Jobs Ladder The framework most often used by macro-economists to explain pay and jobs is the Phillips curve – the negative relationship between pay growth and the stock of unemployment.11 Despite reports of its demise, there is still reasonably clear empirical evidence of a Phillips curve in labour market data, once allowance is made for a possible downwards shift in the NAIRU and/or slope of the Phillips curve.12 An alternative, complementary, lens on the labour market comes from looking at flows of workers between jobs, rather than stocks of unemployed. There is a large literature studying the process by which people search for work and are matched into jobs.13 There is empirical evidence that job-to-job flows – the velocity of circulation in the labour market – can play a significant role in explaining wage growth.14 When studying labour market flows, a “jobs ladder” pattern of behaviour has often been found. In a growing economy, workers move between jobs by climbing a ladder of opportunities based on job characteristics such as relative rates of pay and firm productivity.
Chart 32: Real interest rates and unemployment (1999 – latest) Unemployment rate (per cent)  14  UK  12 US 10 Euro area 8 6  Euro area latest  4 2 UK latest  0 -6  -4  -2  US latest  0 2 Real interest rate (per cent)  4  6  8  Sources: Thomson Reuters Datastream, ONS and Bank of England calculations. Notes: Real interest rates defined in simple terms as current short-term central bank policy rate minus headline CPI inflation rate. 31  All speeches are available online at www.bankofengland.co.uk/speeches  31  The UK occupies an unusual, mid-Atlantic position. It has similar levels of real interest rates to those in the euro area, at the same as having similar levels of unemployment to those in the US. Put differently, relative to both the US and the euro area, and its historical past, the current UK monetary stance looks relatively accommodative. For the same output gap and a higher rate of inflation, the UK’s monetary stance is 2 percentage points looser than in the US. There may well be good grounds for these international differences – for example, differing levels of neutral real rates and different natural unemployment rates. Nonetheless, the very different starting positions of the economy and monetary policy should give us cause to pause before simply assuming central banks should be moving synchronously, even when faced by a common global shock.