Recession Report #10: One million people out of work for over six months
Our latest Recession Report concludes that long-term unemployment will continue to rise for a long time. This month, for the first time in this recession, the number unemployed over 6 months passed the 1 million mark, reaching 1,002,000 – it has been below that level since July 1997. There are now 533,000 people who have been unemployed for over 12 months and 232,000 who have been unemployed for over 24 months. These are the highest figures since June 1998 and July 2000 respectively.
In the second section of this month’s report we consider how pay levels have been affected during the recession. During the downturn many employers’ organisations have been keen to play up the impact that the downturn has been having on pay. For example, in March the CBI announced that the ‘overwhelming majority’ of its members would freeze pay this year, and the British Chambers of Commerce (BCC) recently concluded that ‘58% of companies intend to freeze wages in 2009’ , and that 12% would be cutting staff pay. There have also been increasing calls for public sector wage freezes.
Our analysis shows how misleading these assessments are. The economy has already returned to modest real earnings growth, and the latest analysis from IDS (covering the three months to the end of June) shows that the median pay settlement remains at 2% – the same as the last two months. While pay and earnings growth are lower than in recent years, the majority of employers have not had to resort to freezing or cutting staff pay.
There are important reasons for maintaining earnings during a recession. Firstly, cutting earnings unnecessarily has been shown to have a negative impact on productivity and worker morale, which would make it even harder for businesses to return to growth and to take advantage of the recovery.
Furthermore, pay cuts and freezes would have a negative impact on demand. Cutting take home pay even more, in a context of the reductions we have already seen as a result of rising unemployment, could lead to even deeper cuts in consumer spending – further aggravating the downturn.
Trade unions do recognise that in companies facing particular difficulties agreeing to go without, or limit, a pay increase, may be the best way to save jobs. But in general, but a uniform pay freeze would be disastrous for the economy and unfair to employees – and so far most employers seem to agree.