Thursday, 18 March 2010

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Do not be fooled by unemployment figures

The unemployment figures released yesterday provided mixed headlines this morning.  Some of the press focused upon the fall in unemployment and 30,000 fewer people claiming unemployment benefit.  These are good figures that provide some signs that the recession and the downturn are fading.  However as always the devil is in the detail.
What the headlines don't tend to indicate is that although unemployment fell, so did the number of people in employment.  Therefore the number of people working, earning and producing goods and services in the economy actually declined.

The two paragraphs above may seem inconsistent.  They are not.  The main reason that both unemployment and employment fell is that the total number of people in the labour market has been falling as the inactivity rate increased by 150,000 in the quarter and the number of overseas workers decline 100,000 in the year.  The rise in the inacitivy rate was driven by a 100,000 increase in the number of people registered as students.  Although this is preferable to redundancy, the majority of these students are not attending university or enrolling in rigorous higher education courses, many of these courses have been set up in the past year in the face of recession and are well known to provide little in the way of actual benefit to either the individual or wider society.  A cynical person might even argue that these courses are a very useful political tool to keep down the official unemployment figures. 

Finally the labour market stats also continue to show that it is the public sector that is creating the additional jobs, not the private sector.  Given the necessity for the government to cut its deficit, this is a temporary solution, and likely to be reversed.  Without a return of private sector jobs growth there will be no recovery in the labour market.
Its not all doom and gloom out there anymore and things are slowly getting better, but as ever it is easy to get carried away when misinterpreting monthly data!