Labour isn't working

There's much more unemployment than you might think. Today's figures (pdf) show that although formal unemployment is at 1.66m - 5.4% of the workforce - there are another 2.1m economically inactive people who'd like a job. These include students who aren't really committed to their course, bored housewives and the poorly.
Adding these together implies that there are now 3.76 million unemployed - equivalent to one in eight of the labour force. This is a rise of 360,000 since the low-point in January 2005.
Read this how you like.
It could be evidence that New Labour's economic policies have had only limited success: "unemployment" has fallen only three percentage points since May 1997.
It's one reason why some Monetary Policy Committee members have been loath to raise interest rates: this large potential supply of labour is holding wage growth down.
It could be evidence that frictions in the labour market are greater than thought. Inflation has picked up since 2005, which suggests the unemployment rate then (11.3%) was below the Nairu. Which suggests the Nairu - insofar as the concept matters in an open economy - is higher than generally thought.
Or it could show that Marxists have a point - capitalism, even when it seems to be very healthy by its own lights, is incapable of providing a livelihood for millions of workers.

Comments

[Wolfie]

Your argument is sound but I think the causes of unemployment in the UK are many-faceted. High immigration has ensured that availability gets mopped-up quickly added to the fact that a relatively generous benefits system disincentives the low-paid to enter the job market means that looking a totals are quite meaningless. The methods used to determine the unemployment rate have also mutated over the period leaving a statistician's nightmare. Who knows what's really going on?

[john b]

"It could be evidence that New Labour's economic policies have had only limited success: 'unemployment' has fallen only three percentage points since May 1997."

Another way of phrasing that would be to say that 'unemployment' has fallen 20% since May 1997. Tricky blighters, these statistics...

[jameshigham]

You were doing so well up to this point:

Or it could show that Marxists have a point ...

Or equally, that they don't have the first clue about a market economy, preferring to use coercion rather than allowing market forces to prevail.

[Matthew]

Interesting that 3.8m unemployed has no political effect, but 5.8m (or whatever it would have peaked at in the 1980s) did.

[dave heasman]

" frictions in the labour market are greater than thought"

I guess that depends on what was thought.

It's obvious that many poor/ill people can't move to where the jobs might be because it takes capital and the benefits system won't fund it. In fact if a poor person gets an insecure job the benefits system can't handle his/her losing it within a year and the benefits will be unobtainable for ages.

Was this part of what was thought already?

[dearieme]

To treat any feature of a welfare state as being obviously the responsibility of "capitalism" would be as daft as blaming "capitalism" for the Great Depression without investigating the role of the Federal Reserve, President Hoover and FDR. But then, you're only teasing.

[Mark Wadsworth]

What Wolfie says - a lot of these people HAVE entered the jobs market, but they are working cash in hand to protect benefits, are officail figures adjusted for this.

Also, the Goblin King has raised National Insurance (a super tax on employment) by 2% since 1997. That won't have helped much.

And one or two hundred thousands jobs must have been lost to the National Minimum Wage.

[Bob B]

How does Marxism explain why the (ILO standardised) unemployment rate in Britain is 5.4% but c. 8.7% in France:
http://www.indexmundi.com/france/unemployment_rate.html
http://epp.eurostat.ec.europa.eu/portal/page?_pageid=1996,39140985&_dad=portal&_schema=PORTAL&screen=detailref&language=en&product=EUROIND_LM&root=EUROIND_LM/euro_lm/lm_un/lm010rt

How does Marxism explain why office space in Britain is 'the most expensive in the world'?
http://www.lse.ac.uk/collections/LSELondon/pdf/officespacesupplyrestrictionsinbritain.pdf

[Phil A]

Could it be inversely proportional to carbon emissions? ;-)

[ad]

Isn't goverment spending about 40% of the economy? And there are a lot of regulations etc...

Perhaps we are closer to Communism than Capitalism?

[Mark Wadsworth]

40%? You're having a larf, ain't cha?

Per OECD Economic Outlook 2007, Table 25, UK government spending has increased from 40.4% to 45.1% of GDP over the last ten years. Bung in another 3% for unfunded public sector pension liabilities, sprinkle on 1% for PFI and PPP crapola and you're at 50%.

And this is supposed to be the Good Times. Aren't we supposed to cut spending as % of GDP in the Good Times so that we can borrow a bit more in the Bad Times?

[pommygranate]

The 'official' unemployment figure of 900k (4.5%?) is about as much use as the official inflation number (2.5%?).

As Mark Wadsworth regularly reminds me there are actually 5 million people of working age dependent on the state (900k unemployed, 2.7 million on 'incapacity' benefit', 700k single mums, plus another 1 million miscellaneous).

Assume a working population of some 35 million and that's a 14% unemployment rate.

[john b]

"Bung in another 3% for unfunded public sector pension liabilities, sprinkle on 1% for PFI and PPP crapola and you're at 50%."

I think you're confusing your balance sheet with your income statement there.

In terms of government *spending* (not *liabilities*), PFI payments and the payments of current unfunded pensions are already included.

[Bob B]

Mark - Many thanks for that info about data from Table 25 in the Statistical Annex of OECD Economic Outlook, May 2007, showing the increase in "General government outlays" as percentage of nominal GDP in Britain. That is the best source for making international comparisons.

Unfortunately, it costs to buy OECD Economic Outlook online, which is all right for those in work with employers who have standing subscriptions for OECD publications but not for the rest of us. Fortunately, the relevant data table can be found here:
http://findarticles.com/p/articles/mi_m4456/is_80/ai_n18617470

[Mark Wadsworth]

John B - do you think that the OECD figure includes accrued but unfunded public sector pension liabilities? That might explain why OECD figures show higher spending than Treasury figures, please let me know!

BTW - I am not confusing I&E with BS. The best estimate of annual increase in unfunded liabilities is £41 bn per annum, per Neil Record in an IEA pamphlet. If the government accounted for this like a proper company it would show additional spending of £41 bn per annum. The BS figure for accrued unfunded liabilities is around one trillion pounds, that is a different topic.

The 1% for PPP is just my guess.

Bob B - I logged onto OECD yesterday from home and it came up fine.

Try this

http://www.oecd.org/document/61/0,2340,en_2649_33733_2483901_1_1_1_1,00.html

[Bob B]

Mark - I tried that too and got to the table of contents of the Statistical Annex in the Economic Outlook but try actually downloading Table 25 from that link!!

[Mark Wadsworth]

Bob B, You click the link and then click again where is says "Fiscal balances and public indebtedness", you get an Excel book and Table 25 is the first tab.

Or try this ...
http://www.oecd.org/dataoecd/5/51/2483816.xls

[Glenn Athey]

Yeh but the other key dynamic would be people re-entering the labour market, cos there's more opportunities.

Any increase in unemployment can be a demographic effect. Its common in a bouyant economy, that many folks will start looking for work or want to work now they know there's opportunities and it might be more worth their while.

and all of the folks in the category "want to work" are not actively seeking work on the International Labour Organisation (ILO) measure of having looked for work in the past 4 weeks and being capable of starting work in the next 2 weeks.

Some of those who "want to work" but are not actively seeking work/able - are those with temporary illnesses, or have just started their job search.

[german]

Obviously the unemployment in the United Kingdom is much higher than the official ILO rate. According to german national standards, which include most of the marginally attached and discouraged workers and some of the underemployed, it currently stands at around 8%.

You might see this as a failure of the Labour party. But unemployment in the United Kingdom has been much higher ( with the exception of a short period from 1988-1992 ) during the whole period of conservative governments than today. According to german standards, which add around 3% to the ILO rate, it stood most of the time between 10 and 15%.

Labour did, what every responsible government should do. It invested in the public sector to improve public services and the public infrastructure. And it increased government employment by nearly 0.8 million jobs, which explains most of the decrease in unemployment.

At least in regard to the labour market, the Thatcher-revolution never worked in a convincing manner. Private sector employment in the United Kingdom is and has been always lower than in Germany, the Netherlands, Austria or Switzerland.

And we can see currently here in Germany the effects of an orthodox supply-side economic strategy. The structure of employment has dramatically deteriorated ( 1.8 million less full-time jobs than 2001, the end of the last economic recovery.). Wages are in a free fall, profits are exploding.

It's true unemployment in the United Kingdom and in many other countries is much higher than the official rate. But this doesn't mean, that Labour has failed. It significantly improved the situation in the labour market with a modest increase in taxes and public debt. The opposite of what our stupids governments here in Germany did ( and do ).