The UK labour market isn’t working | FT Alphaville

The UK labour market isn’t working

Wednesday’s UK jobs report is a stark reminder of the inadequacy of government policy — past and present — to reduce unemployment, and in particular youth unemployment.

The number of unemployed people in the three months to the end of June was 2.49m, up 38,000 from March and up 32,000 from twelve months ago. This total is only 17,000 shy of the peak during the recession (2.511m), according to Citigroup’s Michael Saunders, who expects next quarter’s release to show a further increase.

The claimant count rose to 1.56m in July, up 37,100 from June, the largest monthly rise in more than two years. The female claimant count is now at its highest since 1996.

This dual increase is significant: for most of 2011 the unemployment numbers (measured by the Labour Force Survey) ticked down while the claimant count (obtained via benefit registrations) ticked up. Some observers were encouraged to discount broad weakness in the labour market and fob off rising benefit numbers on forthcoming welfare changes. This hypothesis seems less likely after today.

Other data are depressing, too. Redundancies were up while vacancies were down. Average weekly hours worked fell to 31.2 in the three months to June from 31.6 in the three months to March. Some of this was down to the Royal Wedding holiday but there’s also a more worrying broader pattern, according to the Office of National Statistics: “the number of people working part-time because they could not find a full-time job increased by 83,000 on the quarter to reach 1.26 m, the highest figure since comparable records began in 1992.”

There really is no good news here. Overall employment did increase but this is partly a reflection of demographics (more people entering the labour market). Average earnings increased to 2.6 per cent in the three months to June from 2.3 per cent in March but this is still below CPI inflation. Probably best to stick with the Royal Wedding  line.

So there’s a lot to worry about. We hope others will look into the rise in female unemployment: at 1.05m, it’s at its highest absolute number since the end of May 1988. This will likely rise further as public sector job cuts — which disproportionately hurt women — begin to bite and new benefit rules are implemented.

But the most disturbing figures — again — concern youth unemployment. One in five (20.2 per cent) of economically active 16 to 24 year olds are unemployed. As usual the government pointed out that this number includes students who are looking for work. Chris Grayling, the UK employment minister, said the real number was “much lower”.

We’re not sure what “much lower” officially means but once you strip out the students, the youth unemployment rate is still 18.8 per cent, up 0.5 per cent from the three months to March.

So what, you may think. Young people almost always suffer more during recessions (they’re easier and cheaper to get rid of than older workers), and very long-term unemployment (the percentage of the cohort still looking for work after 12 months) is actually higher for older workers.

All true but this time is a little different. For as LSE economists show in a recent blog post, youth unemployment was rising sharply even before the recession:

There are a number of possible explanations, which the academics scoot through in their post. There’s no compelling evidence that it was migration or the minimum wage, and looking at the timing of the rise this seems about right. More likely, they say, is the change in the focus of the New Deal welfare policy away from young people. Again, highly plausible, though there’s almost certainly a missing demand side from these accounts.

Regardless, this is not the fault of one government. But it’s the responsibility of the current one and its policies are inadequate. There is, of course, also an obvious link to recent events but we won’t go there except to say that the hundreds of thousands of unemployed young people who were not rioting deserve better. This was an emergency before and after shop windows were smashed.

Some of the government’s policies will help. The universal credit, despite some big faults, should increase work incentives for young people, according to the Institute for Fiscal Studies. Corporation tax cuts should, too, but the impact on youth unemployment is unclear. Supply side reforms, such as enterprise zones, are nice for the chosen areas but comparative evidence suggests they have little net effect.

But the failure to admit the scale of the problem and its specific, long-running nature smacks of willful blindness and a lack of imagination.

At the very least it’s worth looking again at whether elements of the Future Jobs Fund can be revisited, apprenticeships expanded further, and dedicated help rolled out across job centres. If nothing else, the government needs to make avoiding the cliched lost generation a priority. It’s not a problem that can be solved overnight, or one that is the sole responsibility of this or any government.

But it is crucial and not going away any time soon.

Related links:
Jobless rise fuels fears over UK recovery – FT
Radical welfare reform – Paul Gregg (2010)
The level of youth unemployment is at a record high – LSE Politics and Policy Blog