Archive for the ‘unemployment’ Category
Monday, July 19th, 2010
The UK is suffering far higher inflation than most people expected at this stage of the economic cycle. Our inflation is well above that in the US and EU. What are the reasons for this and what implications can we expect?
Roger Bootle has tackled this question in an article in the Telegraph.
He believes that one-off factors have been the main influence on inflation, including the fall in the value of the pound, and putting VAT back up to 17.5%. But he poses the question as to why those that have this view have been expecting inflation to fall and it hasn’t.
He suggests three possible explanations. Perhaps the excess capacity in the economy which we are expecting to force inflation down, doesn’t in fact exist. However, why should this affect us and not the US and eurozone? Also, the fact that we have 8% unemployment would suggest that there is evidence of excess capacity.
The second explanation is that even if there is excess capacity, there is some reason at work which is stopping it from reducing inflation. He suggests that one possible answer is that as firms face a fall in demand they are pushing up prices in order to maintain profits. Firms are perhaps desperate to maintain cash flow especially as banks are reluctant to lend at the moment.
His third possible explanation is that expectations of future inflation have become dislodged. The fact that inflation has been above target for so long, the Bank of England has resorted to Quantitative Easing, and the dark possibility that the government is quite happy with higher inflation as it reduces real debt levels are all possible contributors. However, Bootle does not accept this explanation, particularly as wage growth is relatively subdued.
He points out that in 2007-08 the pound fell by around 25% and given the importance of the traded sector of the economy, the direct effects of this alone would raise the price level by about 8%, irrespective of other knock-on and second-round effects, especially on wages.
He concludes that the implications for inflation are “decidedly favourable”.
Tags: excess capacity, expectations, Inflation, Pricing, sterling
Posted in Consumer Price Index, Inflation, sterling, unemployment | No Comments »
Wednesday, June 30th, 2010
Surprise, surprise! According to the Guardian, a private Treasury assessment of the planned spending cuts says that up to 1.3m jobs could be lost over the next five years. The Guardian says that it has seen a slide from the final version of a presentation for last week’s Budget, which says that: “100-120,000 public sector jobs and 120-140,000 private sector jobs assumed to be lost per annum for five years through cuts.”
This is in response to the coalition government’s decision to cut most spending department budgets by 25% after inflation over the next four years, with only health and overseas aid being protected.
The government would have us believe that the private sector will grow so strongly over the next five years that it will create 2.5m jobs. This is given the forecast that more private sector jobs are going to be lost than public ones, with a private sector reduction of up to 700,000 jobs over the next five years. If the private sector is to lose 700,000 jobs how is it going to create a further 2.5m? This is utterly ridiculous.
Public spending is being slashed. Government contracts to the private sector will be decimated. Where is the pull coming from for private sector expansion? The man in the street will have less to spend so why should firms produce more goods? They could export more – except for the fact that the rest of Europe is cutting back as well and the US may follow next year. On top of that, sterling is appreciating against the euro. Who is going to buy our goods?
As Brendan Barber, TUC general secretary said yesterday, this is “absurd”. He said: “This is not so much wishful thinking as a complete refusal to engage with reality. Much more likely are dole queues comparable to the 1980s, a new deep north-south divide and widespread poverty as the budget’s benefit cuts start to bite. Many will find that a frightening prospect.”
What reason did the government give for making such dramatic cuts? It was to reassure the markets. Are the markets reassured? No! The FTSE index has fallen 14% since April and in the last six trading days £100bn has been wiped off the value of leading companies. Analysts are saying that markets are on a “cliff edge”.
On top of this the numbers of police on our streets are to be cut on the same basis as all the other spending departments. All I can say is “thank God none of us will have anything left worth stealing.”
Tags: Budget, private sector, public sector, spending cuts, sterling, unemployment
Posted in Exchange Rates, government borrowing, government spending, sterling, unemployment | No Comments »
Thursday, June 17th, 2010
The unemployment rate for the three months to April 2010 was 7.9% which was an increase of 0.1%. There was an increase in the number unemployed of 23,000 to give a total of 2.47 million out of work. This is a bleak figure which looks set to become even bleaker. Particularly so, given the fact that there are 5.2 unemployed people per vacancy at the moment.
On the other side of the coin, the number of people claiming Jobseeker’s Allowance (also called the claimant count), actually fell by 30,900 between April and May to reach 1.48 million. This is the first time this measurement has fallen below 1.5 million since March 2009. This may be because more people are being put on training courses and some of those who are losing their jobs may not be eligible for Jobseeker’s Allowance.
Also, according to the ONS, the number of people who are economically inactive, which means that they are out of work but not seeking employment, actually increased by 29,000 during the three months to April. This means that the total of the economically inactive has now reached 8.19 million which is equivalent to 21.5% of the working population.
At the same time, there was a small increase of 5,000 in the numbers employed in the three months to April. But, the number of full-time workers fell by 56,000 over the quarter whilst the number of part-time workers increased by 61,000. The number of those working part-time because they cannot find a full-time job rose by 45,000 over the quarter, and now totals 1.08 million, which is the highest figure since comparable records began in 1992.
The employment situation is a mess and about to get worse. The government’s austerity cuts are already biting. Just yesterday, one of my friends lost her job in education, because “funding has been cut for next year” within the local authority. Of course, the more public sector workers lose their jobs the lower government spending will be on the surface. But then there are all the unemployment benefits which will have to be paid added to the loss of income tax and national insurance which the out-of-work will no longer be paying.
With growth figures being slashed, we are not going to be rescued by the private sector, especially as other governments, especially in Europe, are taking the same sort of austerity measures. If markets dwindle, employment will fall even further. I had a job application this morning from someone who has a “starred” First Class degree and is currently working as a waiter. Your guess is as good as mine as to where it is all going to end.
Tags: Employment, Public Finances, unemployment, unemployment rate
Posted in Employment, Public Finances, economic growth, government borrowing, government spending, unemployment | No Comments »
Thursday, May 27th, 2010
This is the headline figure published today by the British Retail Consortium following a study carried our by the Centre for Economics and Business Research using its model of the UK economy.
They found that an increase in VAT to 20% from its current level of 17.5% would result in the loss of 163,000 jobs over four years and a reduction in consumer spending of £3.6bn.
Such an increase in VAT would be appealing to the government as it would reduce the deficit by £11.3bn by the end of the first year at the stroke of a pen. However, the Chancellor, George Osborne, did seem to suggest this week that he was not planning to raise VAT. But, you never know.
 Will the government take the easy route of raising VAT? According to the BRC such a rise in VAT would cost 30,000 jobs in the UK in the first year alone, across all employment sectors. The initial effect of an increase in an indirect tax such as VAT, is to push the supply curve upwards and to the left. This will result in an increase in market prices and a fall in quantity demanded, depending on the elasticity of demand for the various taxed goods.
The tax will serve to reduce companies’ margins, and the incidence will be greater upon them the more elastic is the demand for the product. As margins are squeezed, costs may be cut and fewer people employed.
BRC Director General Stephen Robertson summed up by saying: “The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth revealed by this new information.”
“Business growth will get the country out of the hole it’s in, led by retail. The government must now deliver a route to stability that supports companies and customers by avoiding damaging tax rises.”
Tags: consumer spending, Elasticity, indirect taxation, Microeconomics, tax incidence, unemployment, VAT
Posted in Employment, Public Finances, taxation, unemployment | No Comments »
Thursday, May 13th, 2010
The unemployment rate was unchanged at 8.0% in the three months to March 2010. But the number of unemployed increased by 53,000 over the quarter to reach 2.51 million. This is the highest figure since the three months to December 1994.
Figures were also published by the Office for National Statistics yesterday to show that the number of people classed as economically inactive, that is those out of work and not seeking work, has risen by 88,000 to reach 8.17 million. This is the highest total since records began in 1971 and includes students, those acting as carers for relatives and those who have simply given up seeking work. There has doubtless been an increase in the number of discouraged workers who have simply given up looking for a job in the current climate.
There are also an increasing number of people who have been unemployed for 12 months or more. This figure increased by 94,000 over the quarter to reach 757,000 which is the highest figure since the three months to May 1997. Given that the number of people out of work for up to six months actually fell by 52,000 this suggests that we have nearly three quarters of a million long-term unemployed who are finding it virtually impossible to get back into the job stream. This is probably due to a mismatch of skills compared to current demands by businesses.
Whilst the Labour Force Survey measure of unemployment shows a worsening picture, the number of people claiming Jobseeker’s Allowance, also known as the claimant count, continues to improve. This has now fallen for the last three months and for five out of the last six months, and between March and April fell by 27,100 to reach 1.52 million. These falls could be due to the active government initiatives to place the unemployed on training courses.
The employment rate for the three months to March 2010 was 72.0% which was down 0.3% on the quarter and was the lowest level since the three months to September 1996. The number of people in employment fell by 76,000 on the quarter to reach 28.83 million.
There was a fall in the number of full-time workers of 103,000 while the number of part-time workers rose by 27,000 over the quarter. The number of people who are now working part-time because they cannot get full-time work increased by 25,000 over the quarter to reach an amazing total of 1.07 million, which is the highest figure ever recorded. This shows the extent of underemployment within the economy, but also its flexibility, which has meant that the headline unemployment figure is much better than it could have been.
Comparatively, the UK’s unemployment rate of 8.0% is superior to many other nations. The OECD average for March was 8.7% whilst the EU recorded 9.6% and the euro area was 10.0%. Other significant figures show the rate in Ireland at 13.2%, Spain at 19.1% and the US at 9.7%,
Bad news in the short term is that the number of job vacancies fell by 6,000 to 475,000, which is the first quarterly fall since last autumn. In addition, public sector employment rose by 7,000 in the last quarter of 2009, whilst private sector employment fell by 61,000. So, at a time when Gordon Brown was talking about the need to curb public sector employment it was growing to 6.1 million. I’m sure the new coalition government will have something to say about that.
Tags: Employment, job vacances, long-term unemployment, underemployment, unemployment
Posted in Employment, unemployment | No Comments »
Friday, May 7th, 2010
Well to be strictly accurate it will be from the Queen’s Head. I’m meeting Skipper Harrison and some of the lads down there for a celebratory drink. We’re used to late night sittings, so this running the country stuff should be a bit of a doddle.
The first thing we will have to do is choose a cabinet. I know Skipper’s got his eye on a teak one which holds lots of bottles, and where the little light comes on when you open the doors.
We’re planning to make the tough decisions no one else wants to tackle. The first thing that we’ve decided to do is abolish the Treasury. Those guys couldn’t work out which way the wind was blowing during a hurricane. So, time for a change. We are going to replace it with the Department of Professional Economists, or DOPE for short.
If you are interested in the position of Chief Dope you can apply using my bank account details at the end of this message.
We obviously need to get the economy booming again. The way we are going to tackle this is to ensure that the rate of inflation is always higher than the rate of return on savings, ensuring that the real value of savings will continually fall. This will result in individual savers and pension funds liquidating their holdings and pouring billions of pounds into consumption. Of course, it makes even more sense to buy now before prices go up even further. This will raise GDP to well above the EU average and result in a higher tax take.
So, problem solved. We can then concentrate on getting new roofs on our duck houses. This could be used as work experience for the unemployed.
Our policies will then result in higher consumption, increased GDP, soaring government revenues and lower unemployment. I think we deserve that other drink now. It’s easy when you are a real economist.
Unfortunately, in the make-believe world of politics things will probably be very different. Everyone is talking about a hung parliament and a coalition government. My guess is that the Liberal Democrats and Labour will get together to form a new party called Libor to run the country. They will rely totally on borrowing from investment banks with Golden Sacks and Lemming Brothers being the main contributors. This way to the edge of the cliff, everybody.
Tags: GDP, government revenues, Inflation, Interest rates, investment banks, savings, tax take
Posted in Fiscal stimulus, Gross National Income, Inflation, Interest rates, economic growth, government borrowing, savings, unemployment | No Comments »
Thursday, April 22nd, 2010
The latest unemployment figures take a bit of unravelling. The headline figure for the three months to February, using the Labour Force Survey measure, was up by 43,000 over the quarter to reach 2.5m. This is the highest figure since 1994. This gave an unemployment rate of 8.0% which was up 0.1% on the previous quarter. This is bad news.
However, the number of people claiming Jobseeker’s Allowance, which is also known as the claimant count, actually fell by 32,900 between February and March 2010 to reach 1.54m. This is a bigger fall than anticipated and this measure of unemployment has now fallen for four out of the last five months. This is good news.
 Are things getting better or worse in the UK labour market? So, how then do we reconcile two figures which are moving in opposite directions. It seems that one major factor to the fall in those claiming Jobseeker’s Allowance is that a number of new training schemes have been put in place which are particularly aimed at young people, and which are at least temporarily, keeping them off benefits. Thus, they cannot be unemployed whilst they are being trained. In fact, official figures show that the number of people on government training and employment schemes has increased by 12,000 or 11.2% in the three months to February.
The question is, when the training is over will there be any jobs available? I have already blogged this week about the possibility of a jobless recovery and given the upcoming cull in the public sector it would appear that unemployment will rise further over the next year or so.
An additional factor which would back this up is the fact that there are now 1.05 million people working part-time – because they could not find a full-time job. This number increased by 13,000 over the past quarter. We therefore have a major problem of underemployment.
The significance of this is that these people are now classified as ‘employed’, and it may be as the economy picks up that they will get the first opportunity to move into full-time jobs as the companies they work for start to expand. But as they work more hours they will still just be amongst the already ‘employed’. The point being that the labour market could expand fairly quickly without reducing the unemployment figures.
So, the future changes in the labour market are going to be difficult to call. One positive note is that the number of vacancies for the three months to March 2010 was up 9,000 over the quarter to reach 475,000.
Finally, average earnings figures were also published yesterday. These show that the annual growth rate for regular pay, excluding bonuses, was 1.7% for the three months to February 2010, up from 1.5% in the three months to January. But, what continues to astound, is the difference between the private and public sectors.
When bonus payments are excluded, which mainly apply to the financial sector, growth in private sector average earnings stood at 0.9% compared to a whopping 3.9% for the public sector. Mr Brown is obviously being very generous to government servants, but the day of reckoning cannot be far off.
Tags: average earnings, Employment, private sector, public sector, underemployment, unemployment
Posted in Earnings, Employment, labour markets, unemployment | No Comments »
Wednesday, April 21st, 2010
“The recovery is underway but it will not be strong enough to bring the millions of new unemployed back to work” according to OECD Secretary-General, Angel Gurria, in a meeting with G20 labour ministers in Washington yesterday.
According to Gurria the major policy challenge is to balance two apparently contradictory needs: to tackle unacceptably high unemployment and simultaneously reduce unsustainably high fiscal deficits. “We expect 1.9% average GDP growth in the OECD area for 2010 and 2.5% for 2011. Much of the recovery is still policy-driven; but this can’t go on for long.”
“The OECD average fiscal deficit is close to 10% of GDP, while public debt is expected to reach 100% of GDP by 2011 (30 percentage points higher than before the onset of the crisis). Even if consolidation were sufficient to bring public budgets back to balance by 2017, debt-to-GDP ratios would still exceed pre‑crisis levels in most countries.”
 Will the recovery be sustainable initially with little increase in employment? On top of this OECD estimates also suggest that OECD countries may have lost over 4% of their output potential as a result of the crisis; half of it because of higher unemployment.
It is also felt that even in those countries that managed to contain job losses by widespread cuts in working hours, the short-term labour market outlook is not rosy. They face a serious risk of a “jobless recovery” because firms have ample margin to respond to the increase of demand by raising working hours before they start hiring new workers in large numbers again.
Gurria suggests three priorities. “First, support for labour demand needs to evolve from preserving jobs to jumpstarting job creation. Second, effective re-employment services, combined with adequate safety nets, have a key role to play in promoting a quick reintegration of jobseekers into jobs, while fighting poverty. Third, policies to prevent a “lost youth generation” are a must.”
Tags: Employment, hours worked, recovery, youth unemployment
Posted in Employment, OECD, unemployment | No Comments »
Wednesday, March 17th, 2010
Pascal Lamy, director-general of the World Trade Organisation recently gave a speech in Brussels at which he explained the deterioration in world trade over the past year.
He said: “These are not easy times. We know that in 2009, growth of real world GDP was negative, estimated at -2.2 per cent. Furthermore, the global unemployment rate reached its highest level ever, with the International Labour Organization estimating the number of jobless worldwide at over 200 million. The adverse impact of the recent financial crisis on the world economy in terms of output and employment is undeniable.
“World trade has also been a casualty of this crisis, contracting in volume terms by around 12 per cent in 2009 — the sharpest decline since the end of the Second World War. The main explanation for this freefall in trade has been the simultaneous reduction in aggregate demand across all major world economies. The drying up of trade finance during this period has also been a contributing factor. To a much lesser degree, trade has been adversely affected by some instances of increased tariffs and domestic subsidies, new non-tariff measures and more anti-dumping actions.
 World trade declined by about 12% last year. “We started last year with a collapse in trade, a drying up of trade finance, concerns that donors would reduce funding for “Aid for Trade”, and worries that protectionism would kick in. And yet one year on from the onset of the crisis, we see that, to this point at least, the multilateral trading system has proven its sturdiness as a bulwark against runaway protectionism.
“In most developed economies, including the EU, stimulus packages have been instrumental in preventing further deterioration in output while preparing the path to recovery. The jury is still out though on whether some of the measures introduced to stimulate economies contain provisions that favour domestic goods and services at the expense of imports.
“But the positive impact of national stimulus packages is fleeting and worries are mounting over the huge budget deficits rung up by many governments. Economies urgently need other sources of growth — sustainable engines of growth which will not add to our already seriously indebted economies. This is where trade can be an important part of the story, both in the long-run and in the short to medium-term.
“In the long-run, economic growth is driven very significantly by technological progress and the quality of domestic institutions. Trade has an important role in this context.
“First, it can enhance technological progress by increasing the incentives to innovate, facilitating transfer of technology and fostering “learning-by-doing” effects.
“Second, trade reform may directly increase the quality of institutions by leading to the adoption of certain institutional norms. Moreover, the preferences that underlie such institutional reforms may be the indirect consequence of the workings of market forces associated with trade.
“In the short-to-medium run, trade allows external demand to provide a buffer for economies facing low domestic demand during periods of recovery from the crisis. This is especially important in several developed economies, where domestic demand is likely to be subdued for a while as domestic savings are reconstituted and the financial system recovers. Trade openness vis-à-vis a diverse set of countries is important for mediating the effect of a shock.
“More generally, trade can increase income or output levels through efficiency gains from specialization based on comparative advantages, greater competition, access to a larger variety of intermediate inputs, scale economies and an intra-industry reallocation of resources.
“Moreover, exports, in particular, can increase the levels and growth rates of income or output as they often have a high value-added component. This is especially true in developed countries, where firms specialise in the high value-added segment of the global supply chain. Importantly, the value-added component of exports is likely to have a positive effect on domestic demand due to backward linkages with several sectors in the economy.
“In fact, evidence suggests that the domestic content of value added by exports is higher as countries develop. For example, in 2008, 80 per cent of the value of the goods exported by the US had a domestic content, while this share was only 42 per cent for Malaysia. In addition to the value-added argument, there is evidence of “learning-by-exporting”, which increases productivity and hence promotes growth.”
To read the full speech click here
Tags: GDP, International Trade, Protectionism, unemployment, World Trade Organisation
Posted in GDP, International Trade, Protectionism, World Trade, World Trade Organisation, economic growth, unemployment | No Comments »
Monday, March 8th, 2010
Up to 270,000 civil servants are starting a two-day strike today over concerns about cuts in redundancy pay. This will include workers in courts, job centres, passport offices, tax centres and emergency police call centres. The strike has been called by The Public and Commercial Services Union (PCS).
This is the biggest strike by civil servants for over twenty years and has come about in response to the government signaling the fact that it will have to make cuts in civil service jobs. Starting in April the government is planning to save around £500m by capping the amount that is given to members of staff who are either laid-off or are taking voluntary redundancy at a level of £60,000.
Redundancy compensation is usually based on the number of years worked in that employment and the PCS argues that an employee with 20 years service and earning £24,000 per year could lose £20,000 as a result of these changes. However, according to Tessa Jowell, who is the Cabinet Office minister, “Those earning £30,000 or less – 80% of the staff – will still get up to between two and three years’ salary, while civil servants earning over £30,000 will have redundancy pay capped at two times salary.
The government also points out that five of the six civil service unions whose members have been affected, have already agreed to the changes after 18 months of negotiation.
But, Mark Serwotka, PCS general secretary, said: “Loyal civil and public servants won’t stand by and allow the government to cut jobs on the cheap. Those on strike today deliver services that touch our everyday lives from the cradle to the grave. Under these imposed changes, they face losing up to a third of their entitlements and tens of thousands of pounds if they are forced out of their job. The government is tearing up the contracts of low paid civil and public servants whilst it claims it can do nothing about bankers’ bonuses because of contractual obligations. The government need to recognise that slashing entitlements and cutting jobs on the cheap will damage public services and reach an agreement that protects existing members’ entitlements.”
With the axe about to swing in the public sector, resulting in many job losses, we can probably expect a Spring and Summer of discontent with more days being lost to strike action.
Tags: industrial action, job losses, public sector, Strikes
Posted in Strikes, government spending, labour markets, unemployment | No Comments »
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