Fall In Official Unemployment Rate Masks Rise In ‘Hidden Jobless’

(Independent) – FRESH HOPES that the worst is over for Britain’s battered economy were raised yesterday after forecasters were confounded by the first fall in unemployment for 18 months.

But the figures showed that the country still has a growing army of eight million “economically inactive” people, with the size of the labour market declining to 28.92 million. The rate of employment is now at its lowest level since the winter of 1996-97.

Official figures showed that the headline jobless rate for the three months to November fell 7,000 to 2.46 million, the first fall since the quarter ending May 2008. The number of 16- to 24-year-olds out of work fell from 943,000 to 927,000.

However increasing numbers of people are being forced into part-time work – a record high of 7.71 million, up 99,000. Just over a million employees and self-employed people were working part-time because they were unable to find full-time jobs, another record figure.

That bodes ill for consumer spending – an important driver for the recovery – because part-time workers are typically paid poorly. Another worrying figure was issued by the left-leaning Institute for Public Policy Research. It warned that half of all black people aged 18 to 24 were jobless compared with 20 per cent among white people of the same age.

Economists remain divided on whether the unemployment rate has peaked or will rise again over the next few months. However, they said that despite some disturbing trends, the figures still show that the labour market has proved remarkably resilient compared with previous recessions and to competitors such as the US.

While Britain’s economy has contracted by 6 per cent during the worst recession since the Second World War, the rate of unemployment has yet to top 8 per cent. That compares to the US where the economy contracted by 3.9 per cent but the rate of unemployment topped 10 per cent. Following the recession of the early 1980s the jobless total rose by just over two million; in the early 1990s recession it rose by 1.4 million. If it really has peaked, this time it will have risen by less than 850,000.

Economists believe that the likely explanation is an increased willingness among workers to accept lower pay or to work part-time to preserve their jobs. The theory was born out by government data on wages. Total pay including bonuses rose by just 0.7 per cent on a year earlier while regular pay (excluding bonuses) increased by 1.1 per cent.

A number of companies have explored ways of keeping staff through the downturn by offering reductions in hours and pay as alternatives to redundancy – some employees have been given the option of taking unpaid sabbaticals if they wish to pursue education or other interests.

This has allowed firms to reduce payrolls during the downturn while keeping hold of skilled employees.

David Page, economist at Investec, said the data added further weight to the view that the surprise figures showing Britain remained in recession in the third quarter were “wrong”.

However, he pointed out that productivity in the US was much higher than in the UK. “It means that as the US comes out of recession, companies are likely to hire more aggressively because they are getting all they can out of their staff. That is not the case in Britain where productivity has been falling and companies may not need to take on more staff for some time.”

Ministers warned yesterday that unemployment would probably rise again over the coming months. The need to cut the country’s budget deficit after the general election is also all but certain to lead to job losses in the public sector. Its continued expansion through the recession has eased the pressure on unemployment as private-sector firms have shed staff.

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