Unemployment

What is unemployment?

Unemployment is an economic indicator that refers to the number or proportion of people in an economy who are willing and able to work, but are unable to get a job; a person in this situation is said to be unemployed. People who are not willing or able to work, for whatever reason, are "economically inactive" and do not count towards unemployment figures.

High levels of unemployment are usually typical of a struggling economy, where labour supply is outstripping demand from employers. When an economy has high unemployment, it is not using its economic resources in the best possible way.

Unemployment also carries significant social costs. People who are unable to find work must frequently rely on benefits for income: if they have financial or family commitments, this can make life extremely difficult. Moreover, the sense of failure, boredom and rejection that being unemployed can generate has real social consequences. Studies have repeatedly linked unemployment to rising crime and suicide rates and the deterioration of health.

The causes of unemployment are manifold. Economists distinguish a number of types of unemployment, however: cyclical unemployment is brought about by the vagaries of the business cycle; structural unemployment is brought about by changes in the economy or the labour market, when the jobs available do not fit the workforce's skills; frictional unemployment is the phenomenon of people being "between jobs"; and seasonal unemployment is linked to certain types of seasonal jobs, such as farm work and construction.

Background

The history of unemployment in the UK is central to both the economic and social history of the country.

The 1950s and 1960s saw a very low rate of unemployment (around 3 per cent on average) as a result of the "postwar boom". Servicemen during the Second World War had been promised full employment after victory, and no government of the period was prepared to break this pledge. Technological advance, a stable international trade environment, the success of Keynesian economics and the stability of the Phillips Curve (which postulated a relationship between high inflation and low unemployment) created a situation which did approach full employment - although of course, at that time the majority of women remained in the category of the "economically inactive".

The economic orthodoxies of the boom years collapsed in the 1970s. The energy crises of 1973 and 1979 generated "stagflation", rising inflation and rising unemployment - something the Phillips Curve deemed impossible. In Europe, fixed exchange rates pegged to the German mark forced EU member states to deflate their economies to keep pace with low-inflation West Germany. The failure of Labour's "In Place of Strife" labour market reform proposals in the late 1960s had led to a situation where union power was increasingly stifling markets by keeping wages high. Unemployment topped one million for the first time in January 1972. During the 1979 "Winter of Discontent", when even gravediggers went on strike to protest against pay freezes, unemployment stood at 1.1 million, and the Conservatives swept to power on the message that "Labour isn't working".

However, during the early 1980s, unemployment rose further still - it topped three million in 1982. The January 1982 figure of 3,070,621 represented 12.5 per cent of the working population, and in some parts of the country it was even higher: in Northern Ireland, unemployment stood at 20 per cent, while in some areas dominated by declining industries such as coal mining, it was much higher still.

Unemployment began to fall again throughout the 1990's and by 1999 was below the two million mark at around 1.7 million. This trend continued until 2005 with official figures showing unemployment at 1.397 million. However, in the last two years of the Blair government unemployment began to rise again and by 2008 Gordon Brown was coping with a global recession and unemployment figures back up to 1.79 million - the highest for a decade.

By the time the Coalition came to power in May 2010 unemployment had risen to over 2.5 million. The new Prime Minister, David Cameron, said unemployment was "forecast to fall every year" under the Coalition's policies and he pledged: "At the end of this Parliament unemployment will be falling."

Unemployment continued to rise and official figures published in October 2011 showed that for the June to August quarter, 2.57 million people were unemployed – the highest since 1994.

This trend of rising unemployment continued through the last quarter of 2011 and the beginning of 2012, but there were increasing signs of stabilisation in the labour market and by March 2012, although unemployment showed a rise of 28,000 compared to the previous quarter, this was 5,000 below the headline figure of the previous month.

Then figures published in April 2012 showed the continuing rise in employment was coupled with a fall in unemployment of 35,000 on the quarter, to 2.65 million. This was despite the fact there were more people in the labour market, with a fall in inactivity of 25,000.

Figures for the March to May 2012 quarter also showed a continuing fall in unemployment. However, Employment Minister, Chris Grayling, said that whilst any fall in unemployment was very welcome, he remained "cautious" about the next few months in light of the continuing economic challenges.
 

Controversies

Throughout history, policy-makers have from time to time taken the view that the macroeconomic benefits of high unemployment outweigh its economic and social costs. This was the case during the early 1980s. Most of the time, however, governments are unwilling to permit high unemployment, due to the demonstrated social effects, the economic underperformance it reflects and the public cost in terms of benefit payments it demands.

Nevertheless, as an aggregate figure the "headline" unemployment figure and rate can only tell part of the story. Structural differences between the regions of the UK have often meant that a nationwide figure masks localised problems. For years, unemployment in the north of England, Scotland and Wales have been considerably higher than in the prosperous South East and London. Even within regions, there are local pockets of high unemployment. Many towns remain dominated by a small number of large employers: when a locally-significant business closes, such as the mines during the 1980s or Rover's Longbridge plant in Birmingham more recently, the effect can be devastating.

Headline figures can also disguise other complexities, such as the prevalence of unemployment amongst ethnic minorities, women, disabled people, young people, and people who have been unemployed for long periods of time.

At present, there are two principal measures of unemployment used by the Government: the International Labour Organisation (ILO) measure (the UK's version being known as the Labour Force Survey or LFS unemployment); and the Claimant Count. The former is based on a survey of 57,000 households, and classifies participants as employed, unemployed or economically inactive on the basis of work done in the previous week. The latter is based on the numbers claiming unemployment-related benefits. On its election in 1997, the Labour Government proclaimed its preference for the ILO measure, because of its international recognition. However, it claimed that unemployment had fallen below one million in 2001 on the basis of the Claimant Count measure only: at that time, ILO unemployment stood at 1,535,000.

This is only the latest example of the problem of measuring unemployment. Most governments are keen to minimise the appearance of unemployment, not only for political reasons but also for the economic signals it sends out. Over the last 25 years, numerous revisions to the official definition of "unemployment" have been made, which have almost universally revised it downwards. Labour frequently accused the Conservatives during the 1980s of moving unemployed people on to sickness benefits - classifying them as economically inactive rather than unemployed - as a strategy for cutting the unemployment figure.

In recent years, the problem of bringing more economically inactive people into the workforce has been rising on the political agenda across Europe. A 2000 study found that the economically active proportion of the population across the EU was just 69 per cent, around 77 million adults. The savings of the current workforce are increasingly believed to be insufficient to pay for the pensions of the soon-to-retire. Government has pursued this agenda by a combination of incentives, such as training and childcare, and sanctions, principally tightening eligibility for benefits such as Incapacity Benefit.

Following the publication of figures in October 2011 showing that unemployment had risen to 2.57 million, the leader of the Opposition, Ed Miliband, argued that as the Prime Minister had "justified his economic policy" by saying unemployment would fall "this year, next year and the year after", he must now "change course so that he has a credible plan to get people back to work in this country."

However, whilst acknowledging that the Government "have to do more to get our economy moving and get jobs for our people", the Prime Minister remained adamant that "we must not abandon the plan that has given us record low interest rates." And he added: "If we changed course on reducing our deficit, we would end up with interest rates like those in Portugal, Spain, Italy and Greece and we would send our economy into a tailspin."

The Government's strategy appeared to be given credence by figures showing a continuing rise in employment from autumn 2011, accompanied by a fall in unemployment from early 2012, with reports of private sector job creation "more than offsetting" the fall in public sector employment, as the Government had claimed. 

Nevertheless, the TUC remained concerned that youth unemployment was not being addressed. General secretary Brendan Barber welcomed the unemployment figures published in July 2012, describing them as "excellent news", but he pointed out that long-term youth joblessness was up by 18,000 on the quarter to 421,000, and urged the government to prioritise tackling long-term youth unemployment. He also called for an increase in wage growth to help drive the economic recovery.

Statistics

Labour Force Survey - March to May 2012. The claimant count is for June 2012 and the vacancy count for April to June 2012.

The number of people in work rose this quarter:
29.35 million people were in work in March to May 2012.
The employment level rose 181 thousand on the previous quarter and 75 thousand on the year.
The employment rate is 70.7%, up 0.3 points on the quarter but unchanged on the year.

ILO unemployment fell this quarter:
2.58 million people were ILO unemployed in the March to May 2012 quarter, down by 65 thousand on the December 2011 to February 2012 period but up 132 thousand on the same quarter last year.
The ILO unemployment rate is 8.1%, down 0.2 percentage points on the quarter but up 0.4 percentage points on the year.

The level of economic inactivity is down on the quarter and on the year:
The economic inactivity level is 9.21 million, down 61 thousand on the quarter and 121 thousand on the year.
The economic inactivity rate is 22.9%, down 0.2 points on the quarter and 0.3 points on the year.
Excluding students, inactivity as a share of the 16-64 population is 17.4%, unchanged on the quarter but down 0.2 points on the year.

The number of people on JSA rose this month, but the number claiming one of the other main out-of-work benefits is improving:
Claimant unemployment was 1,604 thousand in June 2012, up 6.1 thousand on the level in May 2012 and up 78.6 thousand on the year.
The claimant unemployment rate, at 4.9%, is unchanged on the month but up 0.2 percentage points on the year.
The figures continue to be affected by welfare reform, including reforms to eligibility for lone parent benefits and re-assessment of existing claims for incapacity benefits. Both are likely to have added to the JSA caseload between May and June.
In the year to November 2011, the number claiming incapacity benefits fell 10,800 to 2.58 million. The most recent provisional figure for May 2012 suggests the caseload has since fallen further to 2.52 million.
In the year to November 2011, the number of lone parents on income support fell 66,700 to 581,600. The provisional figure for May 2012 is 575,000, suggesting the level is close to flat.

The number of redundancies fell and unfilled vacancies rose on the quarter:
There were 147 thousand redundancies in March to May 2012, down 27 thousand on the previous quarter but up 4 thousand on the year.
ONS’s vacancy survey estimates an average of 471 thousand unfilled vacancies in the three months to June 2012, up 10 thousand on the quarter and 12 thousand on the year.

Total weekly pay in May 2012 was up by 1.5% over the year:
Growth in regular weekly pay, excluding bonuses, was up 1.8% on the year.

Source: Department for Work and Pensions – July 2012
 

Quotes

"This is an encouraging set of figures in what is still an incredibly difficult economic climate. Not only is unemployment falling but in overall terms there are now almost 100,000 less people on benefits since the 2010 election. We still have a long way to go but this is a step in the right direction."

Employment Minister Chris Grayling, responding to unemployment figures published by the ONS – July 2012.


"These figures are excellent news……The labour market is proving far more resilient than the rest of the economy.
"The only people not sharing in this good news are young people looking for work. The government must prioritise tackling long-term youth unemployment before any more careers are wrecked before they barely get off the ground.
"And while more people are in work, they are still getting poorer in real terms as wages grow at less than half the rate of inflation. Jobs growth needs to be accompanied by stronger wage growth if consumer spending is to help drive our economic recovery."

TUC General Secretary Brendan Barber, responding to unemployment figures published by the ONS – July 2012.