UK’s unemployment record looking less impressive
Before the recession, this country could take some pride in its jobs record – our unemployment rate was lower than the average for developed countries. Over the past four years, unemployment has risen, but it has in most countries – what is our relative position like? Well, new figures from the U.S. Bureau of Labor Statistics provide a rather depressing answer to that question.
The BLS provides tables for the USA and nine other countries America compares itself with, one of which is the UK. The most usable figures are those that translate each set of national figures into US definitions. This means they’re not quite the figures we’re used to talking about in this country, but it’s the relative position we’re interested in here, so that doesn’t matter so much. Our unemployment rate is still a little lower than America’s and Italy’s, and significantly lower than France’s:(*)
Our unemployment rate is usually higher than Japan’s, but it is a little depressing to find ourselves lagging some of the other countries so badly. What’s much more interesting, though, is how these countries have coped with the impact of the global recession on their labour markets: (*)
This table may actually paint our position in too rosy a light. America’s bigger increase in unemployment reflects the massive loss of jobs that took place in 2008 and 2009, that picture is improving very slowly and UK unemployment may rise higher than America’s:
The National Institute for Economic and Social Research’s gloomy forecast for UK unemployment suggests that that upswing at the end of the chart above is more than a blip:
the output gap will be closed only very slowly, with unemployment rising to about 9 per cent this year and remaining high throughout the forecast period. Even in 2014, it will still be over 7 per cent, compared to the OBR’s estimate that the structural unemployment rate is about 5.25 per cent. Unemployment at this elevated level for such a long period is likely to do permanent damage to the supply side of the economy, with large long-run economic costs.
On his Not the Treasury View blog, Jonathan Portes, the Institute’s Director, has drawn attention to “the largest and longest unemployment gap since WWII“. The unemployment gap is the difference between actual unemployment and structural unemployment (here labelled the ‘NAIRU’ – the non-accelerating inflation rate of unemployment):
He points out that the unemployment gap is a measure of the amount of unemployment due to macro-economic conditions:
In other words, if macroeconomic policy is broadly on track, the unemployment gap should be small; it is a measure of the number of people who are not working because macro policy isn’t either.
(Double emphasis in original.) Jonathan notes that we don’t have the high inflation that might normally explain such a gap. He draws one encouraging conclusion from it – that there is more spare capacity in the economy than is sometimes claimed, and so more room for fiscal expansion. But this also means that if we don’t do anything about cyclical unemployment it will become a huge weight of structural unemployment – the spare capacity will drain away.
In other words, if we accept a persistently high level of cyclical unemployment now, we will condemn ourselves to a persistently high level of structural unemployment in the future.
The days when Britain could lecture the rest of the world about labour market success are behind us. Austerity has not served Britain’s unemployed workers well and we are on the verge of creating a structural problem that could take a generation to solve.
(*) The BLS data stretches to the fourth quarter of 2011 for all the countries in these tables except the United Kingdom. I have used the 3rd quarter figure instead.