How likely is 10% unemployment?

The employment numbers last week show the enormous dividend Labour has bequeathed the economy. Comparing employment versus the previous two Conservative recessions shows how much we have to lose if we sink into a double dip without Labour’s active labour market policies.

As Paul Gregg and Jonathan Wadsworth highlighted in their review of the UK Labour market, the employment effects of the recession were dampened by the direct “non-orthodox” interventions by Labour in such policies as the Future Jobs Fund (Graph 1 shows the employment index through the last three recessions). As a result, at this point in the cycle, employment is 5.3 percentage points higher than under Conservative labour market policies.

Graph 1:

In terms of numbers, that is 1.5 million more people in employment than would be otherwise. (Graph 2 shows the difference between the indices on the chart, averaging between the 1980-81 and 1990-91 employment effects, and using 2008 employment levels).

Graph 2:

In previous Conservative recessions growth in employment only began to recover 16 quarters after the start of the recession; under Labour’s policies it slowly started growing Q1 2010. We are currently 14 quarters from the start of the 2008/9 recession, and if there had been no policy changes, we should be expecting employment to start growing significantly in the next 6 months.

The effect on the labour market of the UK suffering the lowest growth rate in the OECD is highlighted by the recent Quarterly CIPD/KPMG survey. It is now forecasting a labour market contraction, with both their current and long term (six-month) employment survey index now negative.

But the active labour market policies have also been dismantled. Some of the 1.5 million whose jobs have been saved, could now swiftly end up on the dole. Add to that a possible 200,000 students who are not going to get university places, and we have at least 1.7 million jobs at risk.

And given that it will take just 660,000 further job losses to bring the UK to 10% unemployment, we are much closer to the ‘1 in 10’ unemployment disaster than you might think.