Friday, 20 February 2009

A few unemployment basics

As unemployment rises a confusion about what it is, even at ministerial level, is starting to become apparent. The unnamed cabinet minister who was quoted recently as saying that "If unemployment goes to 8% that's still 92% of people in work" may well soon be experiencing first-hand the reality of his local Jobcentre Plus, but until he or she joins the queue I expect them to know at least the basics about the UK's labour market.

Before the recession hit, some 75% of those of working age in the UK were in work. The remaining 25% were unemployed, on sickness or invalidity benefits, in full-time education, or in an old fashioned way were housewives. Or househusbands. Or were of independent means and chose not to work.

Unemployment is a stock concept. People are gaining jobs and leaving jobs all the time. Frequently there's a short gap between people leaving one job and starting the next - so that even when there's full employment the unemployment register will always show a minimum. This is known as frictional unemployment. There will also be those whose borderline mental capacity, or physical ineptitude, makes them practically unemployable, though technically able enough to be classed as available for work. Economists can't quite agree on what the unemployment rate should be at a time of full employment, but I'd guess it would hover somewhere around 3%.

There will also be unemployment from structural changes in the economy; as mining and heavy manufacturing, for instance, wind down there will be a lag before workers in these industries re-skill and find new work. The UK has largely passed through this stage - this was the Thatcher revolution - and we should have no significant structural unemployment.

Finally there is demand-deficient unemployment, when the economy can't sustain the number of jobs that the working population are available to fill. This is the type of unemployment that results from the recession.

From another perspective, unemployment may be classed as voluntary or involuntary. The involuntarily unemployed will take a job at the market rate but are unable to find one. The voluntarily unemployed won't.

Right. Now when you hear a news broadcaster say something like 'Unemployment rises to 2m with vacancies at 500,000' it doesn't mean anything by itself; if frictional unemployment is high, it could actually mean we've got full employment.

And when the national statistician tells us that although 600,000 new jobs have been created in the past x years, 500,000 of them have been taken by immigrant workers, it tells us that voluntary unemployment in the UK extends to the number of unemployed above the frictional level, which may be fewer than or more than 500,000 workers, depending.

So we need to take tabloid-like employment stats with a pinch of salt.

And as we all know, governments of whatever persuasion try their best to hide the truth of the unemployment stats from us anyway; disguising the unemployed as being in education or training or sick or invalid is an old trick. If you're going to keep your eyes on one figure, I'd point you to the one of which our unnamed minister is ignorant - the percentage of the working age population in employment. The stats can be found HERE.


Mark Wadsworth said...

Broadly agree that 'unemployment' is a very vague term, if a factory is shut down over the weekend, then come Monday morning hundreds are clearly unemployed - but what about a married Mum who used to work before she had kids, and might take up a job if somebody offered her one, but isn't actively looking?

So far so bad.

But even looking at 'employment' statistics is difficult. How many of those 75% are in state sector non-jobs (answer, about one-in-ten)? How many are in part time work who would prefer full time work? How many are students stacking shelves or serving at McDonalds who, in a few years time, hopefully, will be doing well paid full time jobs? How many of those are Polish Plumbers over here for a year or two who intend to head east once they have saved up a bit of cash? What about somebody with a bit of redundancy money starting up as self-employed?

So ultimately both the 'unemployment' and 'employment' figures are pretty much made up figures on the basis of how you want to define either term.

it's either banned or compulsory said...

A Human Resources Director told me that at 3% unemplyment he is spending his time sifting among the unemployable in trying to fill a position.

Unemployed ex-miner = Structural Unemployment.
Unemployed graduate in medjia studies ( 2/2 ) who can't get a job because he/she is over-qualified = ?

At least Gordon got the ball rolling early in raising the school leaving age to 18, an old, old trick used to mask unemployment totals. I expect that NEETS are already excluded from some stats since they are forbidden to use JobcentrePlus in an effort to boost Conexxions.