Unemployment Rates History

October 16th, 2008 | economics -

Recently, alot of attention has been focused on banks, stock markets, estate agents and the housing market. However, arguably the most important aspect of the economy is the rate of unemployment. If people lose money on the stock market it is bad, but, not the end of the world. If you are made unemployed, it is big disruption to your life. It can lead to home repossesion, depression and frustration about being unable to work.

By looking at the history of unemployment in the UK, we can see that unemployment is highly cyclical – spikes in unemployment corresponding to economic recessions. Furthermore, the unemployment can persist even after the economy has recovered. (We say that unemployment is a lagging statistic; this means that unemployment rises in response to a recession rather than anticipating a recession). Confidence would be a leading indicator.

As well as the cyclical unemployment, it is also important to consider the natural rate of unemployment. This is the underlying rate of unemployment due to structural and frictional factors. For example, it seems that the natural rate of unemployment was higher in the 1980s. I believe this was mainly due to the structural unemployment caused by deindustrialisation and the decline of heavy manufacturing industry. In particular the problem was one of a lack of skills and labour mobility.

In 2009, most economists anticipate unemployment will rise significantly. Currently the labour force survey is 1.7million. If the economy goes into deep recession, unemployment is likely to reach 3 million by the end of 2009.