Latest unemployment drop a mixed blessing

The jobless count is down again - but it's a sign of labour market flexibility rather than nascent recovery...

Last Updated: 31 Aug 2010

Let’s start with the good news: UK unemployment fell again in January, according to the ONS, as another 3,000 people got back into the labour market. Unfortunately, this drop in the headline rate doesn’t tell the full story. Some people are opting out of the market altogether; others have been forced to take temporary work or cut down their hours, which is good in terms of labour market flexibility but puts a rather flattering spin on the overall jobless count. There was also a surprise jump in the number of Jobseeker’s Allowance claimants. And we’re still waiting for the expected cull of public sector jobs, which is likely to push the rate higher again later this year…

Of course, any fall in the jobless count has to count as a good thing. And there were some positives to take from today’s results: the number of unemployed 16-24 year-olds fell by another 13,000 between October and December (though we’re not sure how many of these actually got full-time jobs), while the South-East, Yorkshire, Scotland and the East all saw unemployment fall. Weekly earnings were also up again (albeit by a measly 1.2%).

But some of the signs are more worrying. January’s JSA claimant count was up by 23,000, confounding predictions of a 10,000 fall – a sign, according to the CIPD, that recruitment activity weakened at the start of this year. Not ideal, given we’re now supposed to be out of recession. The proportion of the workforce opting out of the job market altogether also rose, to 21.3% (partly because more young people are taking further study, or heading overseas). This reduces the jobless total, but not in a very positive way.

And perhaps most significantly, we’re also seeing more people forced to opt for temporary or part-time work – the number of people in full-time employment actually dropped again, even as the number of temporary jobs rose. According to ONS data, as well as those out of work, a further 2.8m people are ‘underemployed’, i.e. they’re not working as many hours as they’d like. Glass-half-full types might argue that this shows how much more flexible our labour market is these days – but it also means that the headline rate of unemployment doesn’t properly reflect the loss of capacity in the economy.

Greater flexibility has clearly kept unemployment lower than expected during the recession. But it may also be that some employers just haven’t wielded the axe firmly enough yet – the public sector being the obvious example...

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Latest unemployment drop a mixed blessing
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