Sunday, February 22, 2004
Hidden losers of Labour's jobs machine
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

Of all the achievements of this Labour government, and Gordon Brown’s long tenure at the Treasury, few can rank higher than what has happened to jobs.

High unemployment was once regarded as a permanent feature of the UK economic landscape, as it still is just across the Channel in France and Germany.

“Full” employment was something that had been achieved in the so-called golden age of the 1950s and 1960s but things were different then — we drove British cars, milkmen whistled cheerful tunes and you could leave your door unlocked at night without fear of burglary.

But full employment, apparently lost for ever, is back. Traditionally, economists defined full employment as an unemployment rate of between 2% and 3%, on the basis that there will always be some people out of work temporarily, or for seasonal reasons.

Last month the claimant count measure showed a drop in unemployment of 13,400 to 892,100. More importantly the unemployment rate, the number of claimants as a proportion of the workforce, dropped from 3% to 2.9%.

Not only does the jobless total meet the definition of full employment, and not only is Britain’s unemployment rate the lowest among advanced industrial countries, but it is a fraction of the rates of well over 10% typical in the mid-1980s and early 1990s. Truly, it seems, this is an awesome achievement.

That’s not all. The number of people in work stands at 28.16m, within a whisker of the all-time record established in the August-October period of last year. The total is up by 156,000 in the past 12 months and by nearly 3m over the past decade.

The record period of growth the economy embarked on in the spring of 1992 and which still, astonishingly, continues, is paying dividends in the labour market.

So what could possibly sully this picture? One thing is the way we choose to measure unemployment. While unemployment is at full- employment levels on the claimant-count measure, it is quite a bit higher than that, at 1.46m or 4.9% of the workforce, on the wider Labour Force Survey measure.

Since this is the measure this government said it would focus on when elected in 1997, we should perhaps do the same. Even so, the Labour Force Survey figure is at its lowest since it was first measured in 1984, so we should not nitpick too much.

Of rather more concern is a point raised by John Philpott, chief economist at the Chartered Institute of Personnel and Development (CIPD). He notes that while employment has increased, so has the number of people defined in the statistics as “economically inactive”. A record 7.85m people of working age are economically inactive, 2.1m of whom say they want a job.

“Despite continued good news on employment and measured unemployment, the existence of one in five people outside the labour market, most dependent on benefits, presents both a conundrum and a serious policy challenge,” he said. “Failure to provide today’s large army of jobless men and women with the opportunity, incentive and ability to work makes talk of ‘full employment’ in the UK premature.”

Why has economic inactivity increased at a time of rising employment? The answer lies with men. They have fallen behind in the employment race at a time when women have been making great strides. The proportion of working-age men in work is three percentage points below 1990 levels and 10 percentage points down on where it was a generation ago.

One obvious explanation for this is that men have still not got over the cull of the over-50s that was the norm in many organisations until recently. Just over 70% of men aged 50-64 are in work, a far cry from the days when all but a tiny minority worked until 65. Many are classed as long-term sick; others have retired early, whether they wanted to or not.

More puzzling is what has been happening to employment among younger men. In a labour market as healthy as some figures suggest, you would expect full employment among men aged 25-34. But for reasons that are not clear, employment in this age group has dropped by nearly a quarter of a million to 3.4m over the past two years. One explanation could be that some workers aged 25 and over have been displaced by those younger workers who were the main targets of Brown’s New Deal.

Even that does not fit, however, if David Willetts, the shadow work and pensions secretary, is right. He has highlighted a “lost generation” of more than a million young people without jobs or proper education and training. He suggests, based on Eurostat figures, that youth unemployment in Britain is 12.3%, compared with 10% in Germany. The government has not questioned the figures.

There is more. Before the 1997 election Labour made much of the problem of “workless” households. These were households, under pensionable age, where no adults were working. Some, of course, were people living alone, or single parents.But if workless households were a problem then, they still are. Their number stands at 2.98m, 15.6% of all households, and down by only 137,000 over six years.

Finally, it is instructive to look at the composition of employment in the recent past. Jobs in public administration, education and health, a good proxy for public-sector employment, are up by 153,000 over the past year.

Self-employment, meanwhile, is up by 294,000. That could indicate a sudden outbreak of entrepreneurial spirit in the country. More likely is that, during a tough period for the private sector, there has been an increase in what could be termed “involuntary” self-employment — people who have lost their jobs and been forced to set up on their own.

Add the rise in self-employment to the continued increase in public-sector jobs and it becomes clear that there has been a significant drop in mainstream private-sector employment.

None of this means the labour market is a disaster. What it does mean is that it is by no means as healthy as the claimant count and the raw employment figures suggest. Full employment remains an ambition, not an achievement.

PS: A nice little battle has developed over the future of the euro. Joachim Fels of Morgan Stanley, a pro-euro German economist, suggested in a recent research piece that the single currency’s future was by no means guaranteed. “It’s about time that long-term investors start considering what might happen if the euro-zone fell apart,” he wrote.

The argument was that the suspension of the stability and growth pact and the failure to agree an EU constitution all pointed to serious cracks that suggested “the EU founding fathers’ dream of a United States of Europe is likely to remain forever a pipedream”. Member countries could decide to leave a poorly functioning euro, Fels argued, and there was nothing the others could do about it.

This brought a response on the EU’s website from Professor Robert Mundell, the Nobel prize-winning “father of the euro”. He argued that there was less chance of a break-up of Europe’s monetary union than a complete collapse of the dollar.

I’m staying out of it, for fear of being accused of wishful thinking. But if I had to choose between the long-term survival of the euro and the dollar, my money would be firmly on the greenback.

From The Sunday Times, February 22 2004


My name is haseeb-ul-haq.
My father name is ANwar-ul-haq.
I am job their labour.
I live In Pakistan.

Posted by: haseeb-ul-haq at April 23, 2004 03:36 AM

I read with interest your article in the Sunday Times today (16/5/04)...

I'm aged 45, a qualified accountant, registered with Hays Accountancy Personnel (and many other agencies) in Surrey for over two years looking for temporary work...

Number of Assignments from Hays - zero
Number of Interviews from Hays - zero

Assignments from other agencies - 4months

My self confidence - zero

Am I depressed ?

More like suicidal and now wondering what to do with the rest of my life if I'm unable to work properly again.

Is Britain working?

Not for me it ain't - and I can't be the only one.

Posted by: Joe at May 16, 2004 11:05 PM

So much for 'full' employment. What of the 40s+ group in society? The world is a cold place for them! The Labour Party has succeeded in bureaucratising whatever liberal policies there were regarding supplementing income. It was once possible to pick up 'Temp' work easily and quickly - not any more! Not only that, older people faced with higher unemployment rates have to support the 'Nanny' state in quite another way! We now pay for the new mums and dads to enjoy their leisure leave and nannies, while we suffer all sorts of discrimination! I am lucky to have some sort of freelance work to supplement income, but what a precarious state to be in, once other family members become ill and income must be guaranteed!

Posted by: krystyna wareing at May 18, 2004 04:25 PM