Recession Report #8: Comparing this recession to the 80s and 90s
Today we have published a special edition of our Recession Report. As well as the regular analysis of the most recent unemployment data, we have considered how this recession compares to those of the 1980s and 1990s. The news is not great. In contrast to some commentators, who have been surprisingly upbeat about a 7.2% unemployment rate, we believe it is far too early to talk of green shoots in the labour market.
In both previous recessions unemployment continued rising for at least a year after GDP started to increase, suggesting we are still some way off unemployment’s peak. And over the first four quarters of this downturn there was a 30 per cent increase in unemployment – greater than the same period in the 1980s (29%) and the 1990s (22%).
Our analysis also shows that both the 1980s and 1990s recessions lasted about 18 months, but that in each case there were several precarious months before the economy was fully recovered. In each downturn it took about three years for the economy to recover to the level of output it had achieved at the start of the recession. Independent forecasters predict that output will shrink by around 3.8% during 2009 – which compares to 4.6% during the 1980s recession and 2.5% in the 90s. This recession is severe, and it is likely to be some time before output returns to the level the economy had achieved in early 2008.
The report also considers how the recession is affecting particular groups and sectors. As we have previously reported, men are losing their jobs faster than women, but women look set to experience greater rises in unemployment than in the 1990s. Detailed analysis of unemployment data by ethnicity and disability across recessions is not possible, but secondary research provides some hope that existing disadvantages these groups experience will not be as badly exacerbated by this downturn as they have been previously. However other trends are being replicated, with emerging evidence suggesting that in common with previous recessions the lowest skilled and those in the most deprived areas are likely to feel the effects of this downturn the most. We also look at the impacts of this recession across industrial sectors, and find trends that are comparable with previous downturns. This is particularly bad news for manufacturing, which looks set to experience another sharp decline in jobs. The exception to this trend is finance and business services, which is experiencing steeper jobs reductions than the 1980s or 1990s.
Regional impacts are also beginning to emerge, with concerning signs that we could be heading for a return to large regional variations in unemployment rates. By the time unemployment began to fall in the 1980s claimant count rates showed extreme regional variation, with (for example) a rate of 15.7% in North East (a 9.3 percentage point increase since the start of the recession), compared to 8.1% in London (which had only seen an increase of 5.7 percentage points). The 1990s recession saw less variation in regional increases, largely because several regions had never fully recovered from the 1980s. But since early 2008 regional disparities have begun to re-emerge, with some regions experiencing a percentage point increase in claimant unemployment that is double that of others (for example a 1.1 percentage point in London, compared to a 2.5 percentage point increase in the North West).
Overall the key lesson from the past is that the effects of recessions are felt for years, through economic restructuring, significant changes in unemployment rates and changes in regional distributions of jobs. We are very clear that historical comparisons do not provide a basis for accurate predictions, but it is our view that, whenever it ends, this recession will continue to impact on our labour market for many years to come.
You can hear more about this analysis at the free seminar we are running next week at Congress House – remember to register in advance if you’d like to come.