Labour Market Report #1: A better than reported labour market
Last week’s labour market figures received ambivalent media coverage. The BBC reported that despite large falls in the claimant count plenty of causes for concern remained and The Guardian warned against exaggerating the scale of the recovery. All of this analysis is correct – as our first Labour Market Report shows, we are very far from a fully recovered labour market.
However, it’s also worth reflecting on how much worse things could have been. Until late 2009 the economic conseusus was that unemployment would be heading upwards for a considerable time – Howard Archer was not alone in his prediction that unemployment was likely to top 3 million in 2010, and in our own Recession Report in June 2009 we suggested that the recent recession was following the pattern of the 1980s.
In fact, the labour market has performed far better than anyone predicted. While the situation remains extremely fragile, it is pretty remarkable that only one month after the deepest fall in output since the 1920s unemployment appears to have started to stabilise.
While our report does not aim to understate the scale of the challenge we face in sustaining labour market recovery, we have used this first edition to highlight some of the ways in which things are not as bad as they could have been.
The clearly positive news is that claimant and ILO unemployment are still falling, and redundancies have been declining for three consecutive quarters. But as much of the coverage identified, there are also areas for concern – economic inactivity is up, employment is down and long-term unemployment is still rising.
However, looking more closely at the data shows a more complex picture. The pace of the reduction in employment is beginning to slow, at an earlier point in the economic cycle than was the case in previous downturns, and most of the rise in economic inactivity has been a result of an increase in the numbers of non-working students. As we’ve reported, this is not a non-problem, but it is certainly less of a concern than rising economic inactivity as a result of ill-health, which we have not seen and which would imply that far more people were at risk of becoming permanently detached from the labour market.
While long-term unemployment is going up, this is not surprising, as it reflects the fact that the numbers of people unemployed for between 0-6 months peaked around a year ago. This large surge in unemployment last year has led to a comparable increase in long-term unemployment now, as some of those who lost their jobs a year ago hit 12 months out of work. Again, this is not good news, but on the other hand it would have been truly exceptional for all who became unemployed last year to have found new work.
The next few months will be critical to determining whether a labour market recovery has really started to take hold, and whether any recovery can be sustained. But whatever happens performance this time round has been better than previous recessions – as the DWP point out, in the 1990s the number of people claiming inactive benefits rose by 450,000 over two years and, as we have shown in previous analysis, unemployment rose for years after growth returned in the 80s. As long as Government investment in tackling unemployment is maintained, the chances of us replicating such outcomes seem remote – and that is truly good news for hundreds of thousands of working people.