The British Office of National Statistics released their Labour Market Statistics for December 2011 yesterday and it showed that employment continues to collapse in the UK and unemployment rises. I was at the airport this morning and heard a commentator invoke the words of Albert Einstein. They are very apt in this current economic climate – “The significant problems we face cannot be solved at the same level of thinking we were at when we created them”. The British Employment Minister gets empirical evidence that the Government’s economic strategy is causing massive damage to the economy (who would have thought) and told us that the collapse in employment and vacancies, the rise in unemployment and the record levels of youth unemployment are signs that the “labour market is stabilising”. The UK nor Europe nor anywhere will get out of this mess using the sort of thinking that created the crisis in the first place. Until we work that out and attack this political evil millions are heading for poverty.
The summary results from the UK labour market data covering the period August to October 2011 were:
- Employment fell by 63,000 for the quarter with 67,000 (net) job losses in the public sector and only 5,000 (net) job gains in the private sector.
- There are now 2.64 million people officially unemployed in Britain with a staggering 128,000 extra workers being added to the jobless queue in the third quarter.
- The unemployment rate was 8.3 per cent – up 0.4 percentage points. ONS reports that this is “the highest since 1996 and the number of unemployed people is the highest since 1994”.
- Real wages continue to fall rather dramatically. ONS reports that the UK Inflation rate is running at 4.8 per cent on the year. Total pay (including bonuses) rose by 2.0 per cent over the year to the third quarter 2011 meaning a 2.8 per cent cut in real wages. It is even worse for regular pay (excluding bonuses) which “rose by 1.8 per cent on a year earlier” – translating in to a 3 per cent real wage cut.
What you can glean from the LFS data is the following:
1. Total employment (aged 16 and over) fell by 63,000 in the three months to October 2011 and by 14,000 in the year to October 2011.
2. Total employment for employees fell by a staggering 252,000 in the third quarter 2011.
3. Total employment for self-employed persons increased by 166,000 in the third quarter 2011. The ONS says this is the “highest number of self-employed people since comparable records began in 1992”.
There is always a debate about what a rise in self-employment means. There is strong evidence to suggest that when redundancies are rising (especially in the public service) displaced workers attempt to set up small businesses to maintain an income in the face of declining vacancies elsewhere.
While neo-liberal governments will applaud the trend and claim it is the true “small business ethic” emerging in Britain, the rise in self-employment is more likely to be a sign of desperation. I would note that the bankruptcy rate in the first year of operation for small businesses is very high.
4. Public sector employment fell by 67,000 in the the three months to September 2011 – the “lowest figure since September 2003”.
5. With total employment falling by 63,000 and unemployment rising by 128,000 the difference is explained by the slight rise in participation (called the “activity rate” in Britain). This is somewhat curious because with a deteriorating labour market we normally observe a declining participation rate (hidden unemployment rising). So that requires further research.
The British Employment minister quickly put out a Press Release declaring that the:
There has obviously been an unwelcome increase in unemployment since the summer but these latest figures show some signs that the labour market is stabilising. The number of people in employment is higher than last month’s published figure and the number of unemployed people is steadying. Encouragingly this is also the case for young people not in education.
The increase in those claiming Jobseeker’s Allowance has slowed and our welfare reforms are having a positive impact with overall benefit claimant numbers falling by around 40,000 in the last 18 months.
Grayling, by the way, was also recently embroiled in the controversy where he defended the rights of the owners of a hotel (for profit) to refuse to provide accommodation to a gay couple for no other reason but that they were gay (Source).
Here is his E-mail address – firstname.lastname@example.org – you might like to write to him and point him in the right direction.
In the UK Guardian article (December 14, 2011) – Unemployment is only stabilising in Chris Grayling’s mind – Larry Elliot suggest that Grayling “appears to have been taking lessons from Dr Pangloss” which is a reference to the “professor of métaphysico-théologo-cosmolonigologie” who is the eternal optimist in Voltaire’s Candide.
First, the ONS say that:
The claimant count measures the number of people claiming Jobseeker’s Allowance (JSA) and differs from unemployment (which measures people who meet the internationally agreed definition of unemployment).
The monthly data for November shows that the “claimant count in November 2011 was 1.60 million, up 3,000 on the previous month and up 138,600 on a year earlier”, While it was “unchanged on the previous month” it is “0.4 percentage points” higher than it was in November 2010.
The unemployment numbers cannot be compared because the Labour Force survey is published on a quarterly basis while the rather than the Claimant Count which is designed to indicate the jobless who are receiving benefits.
This DETINI document explains the difference between the LFS unemployment measure and the Claimant Count.
Those excluded from the claimant count measure but included among LFS unemployment include:
- people whose partner is working.
- young people under 18 who are looking for work but do not take up the offer of a Youth Training place.
- students looking for part-time work or vacation work; or
- people who have left their job voluntarily.
It is also true that a claimant of unemployment benefit may fail the LFS activity test (“seeking and available for work”) and thus be excluded from the LFS unemployment measure.
The data shows that the Claimant Count is consistently lower in the UK than the LFS unemployment measure and the latter tends to accelerate upwards more quickly than the former in times of a deteriorating outlook.
I didn’t have time today to construct a comparable series (it requires some juggling) so I captured this chart courtesy of the Guardian. The blue line is the LFS unemployment count, the red line is the Claimant Count and the orange line is Youth Unemployment. The chart is not perfect but is indicative and refutes the “stabilisation” claim.
A good guide to how the labour market is travelling in terms of demand and supply is provided by the so-called U-V ratio which measures the number of unemployed per vacancy. A falling ratio is a good sign and vice-versa.
The following graph compares the movements in the ratio over the last 12 months (to the third-quarter 2011). Clearly, on the back of the fiscal stimulus, the labour market was improving with vacancies rising and unemployment falling – a virtuous combination. With the cutbacks and the damage to confidence, those trends are now in reverse.
Vacancies have fallen since the first quarter 2011 from 483 thousand to 455 thousand in the period September-November 2011 and they have been consistently falling in recent months.
So a combination of rising unemployment and falling vacancies is always a sign that the labour market is deteriorating.
The following graph shows the evolution of employment and unemployment in Britain for 15-24 year olds over the last year. The trend is deteriorating on both measures of activity.
The ONS report that “the number of unemployed people aged from 16 to 24 increased by 54,000 over the quarter to reach 1.03 million” and say this is an all-time record high. I will come back to youth unemployment later.
I thought this “error” by the Justice secretary and former Chancellor (reported HERE) was a good summary. He was asked a question as to the impact on prison places of the emerging recession and replied
It is possible that with the prolonged recession and the long period of youth unemployment, there will be an increase in acquisitive crime … The Prison Service is responding very well to it at the moment, though of course we have to adjust the capacity of the estate.
Clearly, more information than he had to give but also clearly an assessment of what the Government “knows” rather than what they spin
There were dramatic declines in public sector employment. The following graph is shows indexes (September 2009=100) of employment by sector including total (dark blue), private (green) and public (light blue).
The dramatic decline in public employment began around the time of last year’s election. The public sector cutbacks were the first manifestation of the austerity program being pursued by the British government.
The obvious point is that austerity proponents like to claim that the public sector employment losses they create will be more than offset by private expansion. There is some erroneous logic attached to this claim along the lines of private confidence rises when budget deficits are deliberately cut. There might be a negative correlation between budget deficit reductions and private confidence but the causality is the reverse of that proposed by the maestros of austerity.
When private confidence grows, economic activity picks up and budget deficits fall. There is no evidence to support the fact that private domestic confidence rises if a government embarks on a major austerity drive. The evidence is that quite the opposite occurs.
This Bloomberg article (December 14, 2011) – Four Ways to End the Euro’s Crisis of Confidence (written by an ex-UBS banker now a “strategy adviser”) – claims to outline a path that Europe can follow to resolve its crisis.
It compared the US approach which it asserted “relies on monetary easing: bringing liquidity back into the markets to make them operate properly and to support growth” with the “German (and now European) way calls for institutional austerity in a bid to create sound public finances as a basis for economic expansion”.
We could dispute the description of the US approach. It is clear that there is still significant fiscal stimulus impacts operating in the US and the monetary easing is a sideshow. But that is not the point I want to discuss in this blog.
He acknowledges that if the current proposals coming out of last week’s EU Summit are embraced then they:
… will bring widespread austerity to Europe. In the short term, growth will be meager, living standards will drop and unemployment will be high. In the long run, however, we may see another German “Wirtschaftswunder,” or economic miracle.
This is an extraordinary statement.
The former USB banker went on to claim that the EU Summit “addressed the underlying evil: the lack of fiscal discipline and too much leverage in public finances” which I will leave. The underlying evil is the collapse in private spending resulting from the overhang of the private credit binge and the flawed design of the Euro monetary system that prevents governments from acting responsibly and expanding their deficits sufficiently to meet the spending gap. The writer is clearly caught up in the neo-liberal myths but that is another topic.
But what of his claim that “in the long run” an “economic miracle” may come from the austerity?
The immediate costs of unemployment are well-documented and render absurd the mainstream belief that much of unemployment is a voluntary choice that individuals make between leisure and earned-income.
Please read my blog – The daily losses from unemployment – for more discussion on this point.
I summarised the significant economic, personal and social costs thay arise from unemployment to include:
- massive and permanent foregone (lost) current output and income;
- major medium-term increase in uncertainty and rising fear which acts as a deflationary force (reduces private spending even further);
- major spatial (regional) disparities with long-term consequences;
- social exclusion and the loss of freedom;
- skill loss;
- psychological harm;
- ill health and reduced life expectancy;
- loss of motivation;
- the undermining of human relations and family life;
- racial and gender inequality; and
- loss of social values and responsibility.
The research evidence (which I have contributed to in my own work alone and with colleagues over the years) show that these costs are enormous and dwarf the measures that various governments have come up with to estimate losses arising from so-called microeconomic inefficiencies (such as transport systems not running on time etc).
Moreover, it is the long-lived nature of some of these costs that mean that unemployment scars entire family (and societal) futures for generations beyond.
I recall listening to a talk provided by Gary Burtless at the Brookings Institute. His closing comments stuck with me. He was discussig the advantages of direct public sector job creation programs during recessions and he said that while they overcome or attenuate the well-documented costs of unemployment a most persuasive argument for them is that “the kids see their parents going out to work each morning instead of learning about unemployment”.
That was a neat way of summarising how the children of the unemployed inherit the disadvantage and so the failure by governments to attend to the jobless problem now creates new problems in the future.
It is this recognition that always militates against the views of commentators who claim that some short-term austerity will have long-term advantages.
While the concept of a long-term evades exact definition it is clear that the maestros of austerity are oblivious to the costs that can arise with a decade or more of high unemployment. Somehow the unemployed are the inconvenient cost of seeking what may be an economic miracle.
The unemployed become the detritus for the rich to ensure their wealth remains intact and capital repositions itself to accumulate even more wealth.
I have noted before that during the 1970s, as Monetarism became the dominant macroeconomic doctrine and unemployment was increasing as a result of the failure of governments to deal with the OPEC oil price hikes properly, Milton Friedman was asked how long it would take for a deliberately imposed deflationary strategy employed by the central bank (rising interest rates supported by fiscal austerity to bring down inflation) before the economy returned to “full employment”.
He replied, without blinking or blushing with shame, that it might take 15 years or so. That is, a whole generation is sacrificed.
Remember Friedman’s concept of full employment was the blighted natural rate of unemployment which is the object of another debate. Please read my blog – The dreaded NAIRU is still about! – for more discussion on this point.
There were several articles in the journal Family Matters (No. 83, 2009 – published by the Australian Institute of Family Studies which provide evidence to support the contention that entrenched unemployment damages families for generations.
The articles are interesting and worth reading.
In the article – The impacts of recessions on families – we read that:
Recessions can also have significant behavioural impacts that can extend to groups beyond those who become unemployed. A few examples are:
- elevated joblessness among young people, which influences their decisions to enter and/or remain in education, and delays in leaving home;
- delayed formation of committed relationships and reduced rates of fertility;
- decreased demand for child care or use of cheaper, potentially lower quality, unregulated child care;
- deferral of retirement or premature retirement in response to job losses; and
- return of retirees to the labour market, in competition with younger workers for existing jobs.
All of which lock-in the disadvantages of unemployment.
The article – Joblessness, family relations and children’s development by Ariel Kalil says that:
… there is increasing evidence that parental job loss adversely affects children’s educational attainment
The negative effects manifest in a number of ways – including failure, suspension, low achievement generally which blights employment and earnings prospects into the future.
Children who grow up in jobless households demonstrate less motivation for work in later life and often cycle through a sequence of low paid, insecure jobs in between spells of unemployment (and increasingly long-term unemployment).
Even under conservative assumptions, the economic and social costs of sustained high unemployment are extremely high. The inability of unemployed individuals and their families to function in the market economy gives rise to many forms of social dysfunction, in addition to output loss.
While the immediate losses are huge – they reverberate into the future as the children take the multiple disadvantages into adult life. There is a very high rate of return to society in ensuring the all our youth are either study, in training or working.
Leaving a million 15-24 year olds idle (although a small proportion of that figure includes full-time students looking for part-time work) is a lethal recipe for future mediocrity or worse.
The apparent failure of neo-liberal supply side policies to reduce unemployment prior to the crisis is now highlighted during the crisis. There is now an urgent need to address the large pools of unemployment in world economies.
The daily income losses alone are enormous and overwhelm other inefficiencies notwithstanding the productivity heterogeneity that exists across the workforce.
There is no financial reason why the government should not deal with this problem directly by introducing a Job Guarantee. If the Government had the political will, it could readily overcome the problem of persistently high unemployment.
I have to run to get a flight (sorry for flying)!
That is enough for today!