Unemployment in focus
Historically UK unemployment has been a laggard indicator of activity, companies have held on to their workforce as long as they could into the downturn but then been reluctant to hire when conditions improve, relying instead on overtime and extra shifts.
The latest recession, however, has been different, unemployment rose early, in line with the fall in activity levels as companies reacted to control costs in the face of the icy winds from the credit crisis.
The number of unemployed has now risen to 2.51 million, equivalent to 8.8 per cent of the workforce. This is a disappointing statistic but it does not tell the whole story because it is estimated that there are another 2.8 million underemployed, in part time or temporary work rather than the full time employment they seek – a situation which is costing the government about £9bn each year in lost revenues.
The hope had been that these totals would fall as the economy recovered, but this now looks to be too optimistic, for two reasons. The first is the decision to review sickness and incapacity benefit eligibility which could see a large number of claimants reclassified as able to work – but without jobs to go to.
The second relates to the cuts in government spending. In the previous recession some 600,000 public sector jobs were lost, conditions are tougher in this cycle but the government hopes to contain the damage to a similar level by means of a pay freeze to cut costs rather than employee numbers.
Furthermore the hope is that those that lose employment will be reabsorbed swiftly by the private sector. This in particular looks to be an optimistic forecast. Job losses could easily be higher and the assumption that they will coincide in time and location with private sector hiring also seems hopeful.
In the current situation the risk is that at that part of the cycle when we would historically have seen falling numbers of unemployed, the totals are set to rise.
John Kelly is head of client investment at CCLA
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