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. But 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."

However, 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.

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."
 

Statistics

For June to August 2011:

The employment rate was 70.4 per cent and there were 29.10 million employed people.

The unemployment rate was 8.1 per cent, up 0.4 on the previous quarter. There were 2.57 million unemployed people, the highest since 1994 and up 114,000 on the quarter.

The inactivity rate was 23.3 per cent. There were 9.35 million inactive people aged from 16 to 64.

Total pay (including bonuses) rose by 2.8 per cent on a year earlier.
Regular pay (excluding bonuses) rose by 1.8 per cent on a year earlier.

Source: ONS Labour Market Statistics – published October 2011

Background to Labour Market Statistics:

The number of people on JSA rose again this month, but the number claiming one of the other main out-of-work benefits is improving:

Claimant unemployment was 1,597.2 thousand in September 2011, up 17.5 thousand on the level in August 2011, and up 129.2 thousand on the year.
The claimant unemployment rate, at 5.0%, is up 0.1 percentage points on the month and 0.4 percentage points on the year.
The figures continue to be affected by welfare reform, including the ongoing process to re-assess existing claims for incapacity benefits, and this is likely to have made some contribution to the rise in the JSA caseload.

In the year to February 2011, the number claiming incapacity benefits fell 36,000 to 2.58 million. The most recent provisional figure for August 2011 suggests the caseload has since fallen further to 2.55 million.

In the year to February 2011, the number of lone parents on income support fell 78,200 to 613,800. Provisional figures for August 2011 suggest the number has fallen further in recent months, to 590,000, driven by welfare reform.

The level of economic inactivity is up on the quarter and on the year.
The economic inactivity level is 9.4 million, up 26 thousand on the quarter and 75 thousand on the year.
The economic inactivity rate is 23.3%, unchanged on the quarter but up 0.1 points on the year.
Excluding students, inactivity as a share of the 16-64 population is 17.6%, unchanged on the quarter and on the year.

The number of redundancies and unfilled vacancies rose
There were 150 thousand redundancies in June to August 2011, up 6 thousand on the previous quarter and year.

ONS’s vacancy survey estimates an average of 462 thousand unfilled vacancies in the three months to September 2011, up 1 thousand on the quarter and 5 thousand on the year.

This month’s Labour Force Survey covers June to August 2011. The claimant count and Jobcentre Plus vacancy count dates were 8 and 2 September 2011 respectively.

Source: Department for Work and Pensions – October 2011
 

Quotes

"Before they abandon a generation to unemployment for ideological reasons, ministers need to urgently invest in our future and halt the cuts that are wreaking havoc across the country, not least to the very staff who can get people back to work, earning money and paying their taxes."

PCS general secretary Mark Serwotka responding to unemployment figures – October 2011

"The only route to a sustained reduction in poverty is through helping young people into work, not leaving them to a life on benefits.”

Work and Pensions Secretary Iain Duncan Smith – May 2011

"The policies that David Cameron is recklessly pursuing is akin to a drunken captain of an ocean liner, steering straight towards the rocks, heedless of the many warnings of the unwilling passengers.

"Today’s unemployment figures are a scandal, particularly for young people who are also suffering record high unemployment levels."

Unite general secretary, Len McCluskey, responding to unemployment figures – October 2011