Unemployment in the UK

unemployment Source: ONS

Yesterday, Britain experienced the quickest rise in unemployment since the last recession, 17 years ago. Statistics from the International Labour Organisation showed a rise in unemployment to 1.69 million (an increase of 164,000 in the 3 months to August). The Government's claimant count is 978,000. Over the coming months, unemployment is liable to rise to well over 2 million and could reach 3 million the rate of unemployment in the last 2 recessions.

Brief History of Unemployment in UK

Source: Dept for Work and Transport

After the ravages of the Great Depression era where unemployment was over 25%, unemployment in the UK remained relatively low from 1945 until the late 1970s. When Beveridge introduced the Welfare State in 1945, one thing he mentioned was the necessity of maintaining full employment. Using demand management policies and benefiting from a boom in global trade, the UK more or less achieved full employment, until the 1970s. In the 1970s, rising oil prices caused stagflation and unemployment began to rise but was still relatively low.

It was in the manufacturing recession of 1981 when unemployment rose to unprecedented levels. Not only did unemployment reach 3 million, but, it remained stubbornly high until 1986 well into the economic recovery. The huge rise in unemployment was due to the strong value of the Pound, high interest rates and the deflationary impact of strict Monetarist policies. In particular, it was the manufacturing sector that suffered. Male full time, unskilled labour was particularly affected.

Unemployment remained high throughout the 1980s. Even at the peak of the boom in 1989, 1.6 million people were unemployed. This figure involved high rates of structural unemployment (also known as the natural rate of unemployment). This structural unemployment was because the recession of 1981 had made many unskilled workers unemployed. In the fast changing workplace, these former coal miners and ship builders struggled to get work in the new economy. Geographical unemployment was also a strong feature of the 1980s. Former areas of manufacturing and mining, struggled to cope with the large scale redundancies.

In 1991, unemployment rose again, as the economy slipped into another recession. Unemployment peaked in 1993 at just under 3 million. Unlike the 1980s, unemployment fell quicker. From the mid 1990s to 2008, UK unemployment was relatively low. Looking at official statistics, unemployment was fairly close to full employment at just over 3%.

This shows that unemployment is highly cyclical. When the economy goes into recession, unemployment typically has increased to 3 million. If the recession of 2009 is deep, we can expect unemployment to get to 3 million.

Low unemployment was due to:

  • Long period of economic growth
  • Disguised unemployment, many unemployed were allowed to take sickness and disability benefits. Therefore, they are not counted as unemployed. See also: What is True Level of Unemployment?
  • The Labour Force survey has consistently been higher than the government record of people on Job seekers allowance. This reflects the fact it is very difficult to get benefits these days. Some unemployed are not eligible for benefits for a variety of reasons.
  • Regional Recovery. Former depressed areas like South Wales and the North East have been relatively successful in finding new industries to replace the old heavy manufacturing.
  • New Deal. Better education and training for the unemployed to get back to work.
Why Unemployment is set to Rise in UK
  • Contraction of Credit. Credit crunch has made banks reluctant to lend loans, mortgages and credit. The impact is a reduction in consumer spending, lower investment and lower economic growth. Big investment projects are being delayed until lending becomes easier.
  • Global Downturn. The global economy is slowing down, leading to lower exports and international trade.
  • Sectors. Certain sectors have been particularly badly hit by the financial crisis, estate agents, banks, construction industry. There will be increasingly a knock on effect to the rest of the economy.
Other essays:
Perma Link | By: T Pettinger | Thursday, October 16, 2008
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Anonymous Anonymous said...

There is also to consider the fact that the rate of benifit has been incresing below the rate of inflation for quite a long time , this in turn has incresed crime and poverty in the uk , something needs to be done but is it to late ?

June 8, 2009 10:19 PM  

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