From the TUC

Are the Employment Figures Really the Worst for a Generation?

30 Mar 2010, by in Labour market

We’ve been hearing a lot recently about ‘economic inactivity’ – people who aren’t in employment but don’t count as unemployed because they aren’t able to start work at short notice or haven’t looked for a job in the last couple of weeks.

The line is often something like: these unemployment figures may look good compared with other recessions, but look at all this economic inactivity, especially the number of disabled people. This proves that the government’s employment record is really very weak.

Last month Theresa May called the current levels “a shocking indictment of Brown’s Britain.” The Conservative Party report on Labour’s Two Nations reported that economic inactivity reached “record levels” in 2009. The Daily Mail and the Sun tell us that economic inactivity has “soared” and the Times that it has “swelled” to record levels.

And yesterday there was a cracker: Action on Skills and Jobs,  a “Manifesto for Employment” published by Hays (the recruitment consultancy) and Reform the “cross party” think tank. Usually, I find that I’m no more than a few pages into a report before I’m checking the facts and arguing with the screen. Action on Skills and Jobs set a new record – I couldn’t get past the first sentence. Here it is:

“Earlier this month, the Office for National Statistics showed that unemployment in Britain has reached a 13-year low and that now more than 8 million adults are deemed ‘economically inactive’, more than one in five and the highest since records began 40 years ago.”

Yes, it is true that we have a record level of economic inactivity. You can see it on this chart:

graph

And it is true that the current level, 8,157,000 amounts to 21.5% of all people of working age – over 16 and under state pension age (60 for women, 65 for men).

But that isn’t the whole picture. Firstly, the working age population has also been growing over that period, from fewer than 32 million to more than 38 million:

graph

Eight million economically inactive people in 2010 simply doesn’t mean what it did in the 1990s, let alone the 1980s or 1970s. If we ask what proportion of working age people are economically inactive we get quite a different figure:

graph

Compared with the levels reached in the 70s and 80s recession (and, to a lesser extent, the 90s recession) current levels look comparatively respectable. Indeed, the latest figure, 21.5% in Nov – Jan 2010, is still very slightly lower than the 21.6% level inherited by the current government in Mar – May 1997.

There is another true statement in that sentence from Hays/Reform: employment has reached a 13 year low. But actually, that was the claim that annoyed me most. When talking about economic inactivity, Hays/Reform chose to highlight the level, not the rate. So I assumed that was what they would have done with the figure for employment, but when I looked it up, I found that this couldn’t be true:

graph

The employment level is not the lowest for 13 years, it’s the lowest for five and a half years, and still higher than it was when the current government was elected. Of course, the point I made before about the rising working age population applies here as well and if you look at the employment rate that is indeed the lowest for 13 years:

graph

It looks remarkably as if Hays/Reform chose to look at inactivity levels alongside employment rates simply to make the comparison that would be most disadvantageous to the government. Many people do this, of course, but it isn’t what I’d expect from a “cross-party” organisation.

Employment rates have still got a way to go before they reach the depths we saw in the 1980s and 90s recessions, and the current drop was preceded by the longest sustained period of high employment rates since records began, but it’s still hardly a figure the government will be proud of.

Hays/Reform’s motivation is interesting, of course, but there are questions that are more interesting. One is whether economically inactive people want a job – after all, it’s less of a tragedy when someone who doesn’t want a job doesn’t have one. We do have data for this (unfortunately only going back to 1993) and it is possible to look at the proportion of the working age population who are economically inactive but say that really, they’d rather have a job. The level is remarkably stable: over the past 17 years, there have never been more than 2,396,000 people in this category or fewer than 1,973,000. The proportion of working age people who are involuntarily economically inactive has varied a little bit more:

graph

As you might expect in a recession, there has been a steep rise, but the current rates are still lower than the government inherited and lower than the levels we saw at the end of the 90s recession.

The other interesting figures relate to the reasons people give for their inactivity. There has been a lot of discussion about economic inactivity due to long-term sickness (an old category that also includes people who are disabled). Contrary to what you might expect from many press stories the proportion of working age people who are economically inactive for this reason is lower than it was in 1997:

graph

Some readers may ask themselves why the numbers of economically inactive people hasn’t fallen more if the proportion of the workforce who are economically inactive due to long-term sickness is lower now than it was thirteen years ago. This is all the more confusing as the percentage of the workforce counted as ‘economically inactive’ because they are looking after their home or family has fallen substantially:

graph

A small part of the answer is the growth in the number of working age people who class themselves as retired, this has risen from 434,000 in 1993 to 595,000 at the start of 2010, and the proportion of the working age population this accounts for has risen from 1.2% to 1.6%.

But two factors have been particularly significant. One is the growth of the working age population, already mentioned. The other is that there has been a substantial increase in the number of students, from 1.4 million in 1997, to 2.3 million today. The proportion of the working age population who are economically inactive for this reason has been accelerating over the past ten years:

graph

Another way of highlighting this point is to ask what proportion of the total number of economically inactive people is accounted for by each of the possible reasons:

Economic Inactivity by reason (%)

Students

Looking after family / home

Temp sick

Long-term sick

Discouraged workers

Retired

Other

Mar-May 1993

19.4

38.2

2.7

22.5

2.0

5.8

9.4

Mar-May 1997

18.6

33.5

2.8

28.1

1.2

6.3

9.5

Nov-Jan 2010

28.3

27.6

2.3

24.6

0.9

7.3

9.0

Again the importance of growing student numbers stands out. A major increase in student numbers may make the economic inactivity results look worse, but I have difficulty seeing this as a sign of labour market weakness.

5 Responses to Are the Employment Figures Really the Worst for a Generation?

  1. Tweets that mention Are the Employment Figures Really the Worst for a Generation? | ToUChstone blog: A public policy blog from the TUC — Topsy.com
    Mar 30th 2010, 5:05 pm

    […] This post was mentioned on Twitter by ToUChstone blog, TIGMOO. TIGMOO said: ToUChstone blog: Are the Employment Figures Really the Worst for a Generation? http://bit.ly/baJhBK […]

  2. uberVU – social comments
    Mar 31st 2010, 8:49 am

    Social comments and analytics for this post…

    This post was mentioned on Twitter by touchstoneblog: Richard hits a record for graphs in a blog: 9 and a table in this one about 1 para from Reform report: http://ow.ly/1sIbD – Anyone top that?…

  3. Giles
    Mar 31st 2010, 9:48 am

    Brilliant post

  4. The TUC swipes away a miserabilist myth « Freethinking Economist
    Mar 31st 2010, 9:50 am

    […] is the TUC’s graph-strewn reply. Eight million economically inactive people in 2010 simply doesn’t mean what it did in the 1990s, […]

  5. Robert
    Apr 2nd 2010, 9:45 am

    Come on for god sake, economically unemployed these are people not words add together the people who are claiming JSA, with people who are registered unemployed, and you get over Five million people unemployed.

    Spin spin spin in the end you become so dizzy people cannot help but to ignore you.

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