UK unemployment: the case for optimism
In a lecture to be delivered this evening (Wednesday 29 February) to the Yorkshire HR Directors Forum in Leeds, Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD), will argue that even a relatively modest economic recovery in 2012 could see UK unemployment stabilise at around the current rate of 8.4%, while a stronger recovery has the potential to result in a sudden sharp fall in the jobless total.
Although Dr Philpott will say that he still expects economic growth to be too weak to prevent unemployment from rising close to 3 million in 2013, he rejects the assertion that the UK has a structural jobs deficit that can only be solved by the application of tough employment policy medicine, including a major overhaul of ‘hire and fire’ regulations.
In his lecture, Dr Philpott will argue instead that the UK labour market was performing exceptionally well prior to the recession of 2008-9 and has experienced no subsequent structural deterioration. The barriers to a return to low unemployment, he will say, are not to be found in the labour market but rather in the various factors constraining total spending power in the economy:
The UK has no structural difficulty in creating private sector jobs. The private sector accounted for 4 in 5 of the 2.3 million jobs added to the UK economy in the decade prior to the recession, shed fewer jobs than expected during the recession, and enjoyed a surprisingly jobs rich recovery when the economy picked up in the first half of 2010. Private sector job growth only faltered again when the economic recovery stalled in late 2010 and 2011.
The buoyancy of private sector job growth following the recession has been masked by a sharp fall in public sector employment combined with a 600,000 increase in the UK labour supply. Without the large scale public sector job cuts of the past two years, the CIPD estimates that total employment would already only be around 80,000 (0.25%) below the pre-recession level. And even with the public sector job cuts, only 40% of the net rise in unemployment since the start of the recession is accounted for by a fall in the number of people in work, the bulk accounted for by the increased supply of labour.
Although the number of people unemployed for more than a year has increased from 400,000 to 860,000 since spring 2008 (from a quarter to a third of all those unemployed) this is a much better outcome than following previous recessions. In the early 1990s when unemployment was last at a similar level to today, around 1.2 million people (44% of all those unemployed) were long-term unemployed. This will make it easier for jobless people to return to work as vacancies appear.
Dr Philpott comments: “The CIPD is amongst the first to stress the severity of the current jobs shortage and the importance of easing the plight of those desperate to find work. We have considerably more faith in the underlying strength of the UK labour market than some of those who criticise us for reporting labour market data as we see it. We are pessimistic about jobs only when we see the economy short of demand and employers tell us this is affecting their recruitment and redundancy plans. But we have consistently been very optimistic about the UK’s potential to create the private sector jobs needed to offset the loss of public sector jobs, and thus cut unemployment, once a sustained strong economic recovery is underway.
“The real jobs pessimists are those who think the way to cut unemployment is to turn the clock back on employment rights. There is no ‘UK labour market problem’ that a dose of employment deregulation would help overcome. The mass unemployment we are currently suffering is not caused by the inability of employers to hire and fire workers or excessive wage costs. The arguments of those who wrongly assert it ought to be rejected.”