Labour market downturn gathers momentum

Press Releases

14 Sep 2011

All of the indicators in the latest figures released today by the Office of National Statistics suggest a further deterioration in the UK labour market:

• For the second month in succession the headline unemployment figure from the Labour Force Survey increased significantly. It grew by 80,000 over the quarter to July, taking the total to 2.51 million;
• Similarly, the more recent monthly claimant count figure for unemployment, recording the numbers claiming Jobseekers' Allowance rose again by 20,300 in August. This is the sixth successive month of increase, taking the total to 1.58 million, and rapidly approaching its previous peak in October 2009. This growth can no longer be explained simply by changes in benefit rules (mainly affecting lone parents).
• Employment fell again (by 69,000) in the quarter to July. The latest figures for public and private sector employment (for the quarter to June) show that the total in the public sector fell by 111,000, greatly outstripping the growth of 41,000 in the private sector. Compared with the previous year, public sector employment has now fallen by nearly a quarter of a million.
• The number of job vacancies continued its downward drift to 453,000 in the three months to August.
• Redundancies increased strongly over the quarter, with women and public sector employees worst affected.

Nigel Meager, Director of the Institute for Employment Studies, commented:

‘Despite a few false dawns in recent months, the UK labour market remains in the doldrums. Since the recession began in 2008, unemployment grew less than many commentators expected to nearly 2.5 million by May 2009. However, it has stubbornly remained at that level for over two years. Similarly, the number of job vacancies fell from around 700,000 to 425,000 in the first year of recession, but has been stuck below 500,000 for the last two years.

Today's figures raise a real concern that, after two years bumping along at this low level of demand, the jobs market, rather than entering a recovery stage, is about to take a turn for the worse, with all the key figures moving in the wrong direction. The early impact of the public sector cuts is also now starting to show in the figures and, for the first time this quarter, public sector job loss now considerably outweighs any growth in the private sector.

None of this is at all surprising given the state of the macro-economy. It's now three and a half years since the onset of recession. At the same point following each of the last two recessions in the 1980s and 1990s, GDP was back above its pre-recession level, while this time national output is still languishing about 4 percentage points below that level.

Informed commentators have drawn attention to the chronic lack of demand in the labour market for several months. It's probably too late to stop a surge in unemployment in the autumn and winter ahead, given that much of the impact of spending cuts is yet to come, and the spending power of those in work is being tightly squeezed by inflation. But urgent action is needed to avert more lasting labour market damage, especially to young people, and to those with low skills, who may never fully recover from an extended period of unemployment.

It's hard to avoid the conclusion that policy-makers now need to stop sitting on their hands and start looking for ways to get spending power into the economy quickly. Many of the interventions commonly floated won't do this: recent experience suggests that another round of quantitative easing will simply swell the balance sheets of the banks, while there's no evidence that reducing top tax rates will help. Other growth-enhancing measures to support investment, innovation and skills, although worthwhile, will take years to have an effect. What we need now are interventions to address the immediate jobs deficit, which arises from lack of demand. Common sense suggests that stemming the loss of jobs will require some kind of fiscal stimulus (such as a VAT reduction), perhaps also coupled with a slowing of the pace of deficit reduction.’

Ends

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The Institute for Employment Studies is the UK’s leading independent, not-for-profit centre for research and evidence-based consultancy on employment, the labour market, and HR policy and practice.