Cyclical unemployment turning structural

Ian Mulheirn looks behind today’s jobless figures and shows why the increase in unemployment is becoming a permanent structural problem in the UK, with severe consequences for individuals and the UK’s growth potential.

Unemployment keeps on rising. ILO unemployment – all those who say they’re seeking work – for the three months to the end of November was up by 118,000 on the quarter, reaching 2.68m. But the headline rates are only a part of the story. What really matters is what’s going on behind them.

A headline rate of unemployment could be made up of many millions of people each experiencing a relatively short stint out or work, or a smaller number of people spending a long time unemployed. The former is an unhappy experience for those affected but the pain is spread around. The latter is a human tragedy: we know that long-term unemployment has long-lasting scarring effects and that the longer people are out of work the harder it is to get back in.

That’s why today’s figures are very worrying. Looking at the claimant count we can see that the numbers of short-term unemployed people are actually falling while the numbers out of work for long periods is getting worse. The numbers claiming the main unemployment benefit for over six months is now outstripping the number of short-term claimants of three months or-less for the first time since April 2000.

What this means is that unemployment in this recession has ceased to be a short shock for many and is becoming a semi-permanent fact of life for a growing number of people. In the jargon, cyclical unemployment – a temporary phenomenon that goes away when growth returns – is becoming a permanent structural problem. This has severe consequences for the people affected and the UK’s economic growth potential.


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