Is rising unemployment a result of the ‘international economic crisis’?
Faced with the highest level of unemployment for 17 years Chris Grayling has been touring the studios to set out his explanation for this growing social and economic disaster, explaining that:
It is clear that we are seeing the effect of the international economic crisis on the UK labour market.
The premise is presumably that levels of job creation and job loss in the UK are being driven by falls in confidence resulting from the ongoing Eurozone crisis and slowing global demand. This is simply incorrect. Today’s figures relate to June, July and August 2011. This is a period that followed nine months of economic stagnation and the start of the sharpest cuts in public spending in decades. Unemployment is a lagging indicator – the data are now reflecting the consequences of our stagnant and depressed economy.
What is the evidence? Firstly, in Q2 2011 the public sector lost 110,000 jobs. Over the last year public sector employment has fallen by 240,000. The data are starkly clear: public sector cuts are driving rising unemployment. And as public sector spending is cut workers in the private sector also lose out directly – the staff of BAE are acutely aware of the impact that defence cuts will have for their livelihoods – as well through reduced spending in their local economies. The North East, an area of high public sector employment, currently has an unemployment rate of 11.1%, and across the country on the year we have now lost rather than gained jobs with employment levels down 47,000 annually.
The poor jobs data is also a result of falling household spending which accounts for around 60% of GDP and is being squeezed by high inflation, a consequence in part of a 2.5% rise in VAT, and also by wage freezes (in the public sector and parts of the private sector), low pay rises (an outcome of weak economic growth) and Government backed cuts in tax credits and benefit levels, as well as by high unemployment. Household spending is consequently at its lowest level since the second quarter of 2010. This is having a direct impact on job losses in retail (down 38,000 over Q2 by the workforce jobs measure) as well as depressing demand across the economy: household consumption made a negative contribution to GDP growth of -0.5 in Q2. It is true that our exports are failing to make a significant economic contribution and that world trade has slackened, but the evidence also shows that Government austerity is making a significant contribution to the living standards squeeze and to our faltering economy.
And of course there is a direct link between levels of output and levels of unemployment. Our economy has grown by 0.1% over the last 9 months for which data are available, leaving the Chancellor facing a £50bn growth gap in his deficit reduction plan. Earlier this year many economists wondered about ‘growthless jobs‘ – recognising that rising employment at a time of slow or no growth was difficult to explain. We now have the answer – our economy is generating neither and the impacts of the slow down are starting to show in the labour market, with millions of households up and down the country facing increased uncertainty over their future employment prospects.
What’s more, the scale of the economic slow down is not inevitable. Of course business investment, consumer and business confidence and international trade are all impacted by the darkening global picture. But it is also the case that austerity is making things far worse. The Government has actively chosen to attempt to reduce the deficit over the course of one parliament and to do so by placing the focus on public spending cuts. This is directly leading to job cuts and reduced household spending, and more bad news is to come. The latest data show that Government spending in Q2 still made a positive contribution to growth (indeed without it our economy would have shrunk in the last quarter), as the cuts speed up their economic impacts will increase.
The Government’s strategy is unlikely to work – the costs of higher unemployment and foregone tax revenues are significant and the growth gap is already opening up – but it is simply wrong to argue that its implementation is inevitable. The Minister for Employment is presiding over an employment crisis. It is time to stop making excuses and take some action.