Who is unemployed?

The rise in unemployment to a 17 year high is very bad news for the UK economy. The cause of the unemployment is a combination of factors:

1. Cuts in public sector jobs
2. Slow private sector growth
3. Rising productivity

I am not going to get into the argument about how to solve this situation again. I am interested in two points that arise from The Guardian article linked below.

The economy is growing at 'about half the rate needed' to keep the unemployment rate stable according to one commentator. So the economy is growing, but unemployment is rising. How is that possible? The answer is that each year labour productivity improves, and so to produce the same amount of goods and services each year less workers are needed. A rule of thumb is that 1% Real GDP growth offsets productivity gains to maintain the level of employment.

Therefore the UK is not growing nearly fast enough to keep unemployment stable.

The other point is how we measure unemployment. The economic definition for being unemployed is that the worker is " Willing and able to work at the current wage rate, but cannot find a job". To meet this criteria someone who is unemployed must be able to start full time work in a suitable job at the wages offered in the market.

When someone wants to work but thinks the wage on offer is too low they are voluntarily unemployed (i.e. they fail the 'willing' part of the test). The way the Labour Force Survey measures unemployment means that it can count some people as unemployed when they actually are not willing to work. At this point I should point out that the LFS is more accurate than the Claimant Count which clearly understates unemployment.

The issue raised in the article is that over a quarter of a million of the youth unemployed are in full time education. The Minister thinks they are not properly unemployed as they fail the 'able to work' criteria. This is an issue that arises in every period of high unemployment. Education is often referred to as the 'employer of last resort', if you can't find a job keep busy on a course.

Here the difference between the official statistics and what economists mean by unemployment is highlighted and is useful material for examples when asked about the limitations and advantages of the measures of unemployment. This question comes up in about 50% of F582 papers.

The Guardian article is here

Don't forget the BBC website that provides interactive data in the useful links box on the bottom right

Unemployment rises strongly

There is a problem with all policy choices. There is an inevitable trade off, one goal has to be sacrificed in order to achieve another.

While there have been periods when that really didn't seem too bad (such as the NICE decade), now the costs are transparent. In particular the aim of long run growth and securing a sound budget position is causing a rise in unemployment and the sacrifice of short-run growth.

The recent unemployment figures show this clearly and have inevitably led to a call for a reversal of policy. In this case the costs of the policy are unevenly distributed, those who loose their jobs pay the highest price and for some, the young, there is little prospect of a job anytime soon.

The BBC covers the story and have an excellent interactive map if you follow the links at the bottom of the page!

The BBC coverage is here

Oh no its worse than we thought!

Today it turns out the recession is worse than we thought with a much larger fall in national output than initially reported. This despite suggestions that things were getting better.

This apparent contradiction may be due to the data being old and the rumours of improvements being more recent. This report refers to FIRST QUARTER data, that means January to March,

The BBC report is here

Lessons for monetary policy after the Global Financial Crisis

In a speech given today at the Annual Conference of the Society of Business Economists in London, Spencer Dale – Chief Economist and member of the Monetary Policy Committee – talks about inflation targeting and the lessons that should be learnt from the financial crisis.

The speech can be found here

UK Unemployment figures up

UK unemployment hit a nine year high and is set to rise further.

The Times story is here

Inflation figures released

The latest figures show the annual RPI rate - the country's broadest measure of inflation - fell to -1.1% in May after recording -1.2% the month before, according to figures from the Office for National Statistics, which collects them each month.

Inflation fell less than expected on the official CPI measure, being 2.2% from 2.3%, that's still above the government target rate of 2% in a highly deflationary period. The weakness of the pound seems to have been the main cause of this, forcing up the prices of imported goods and inputs.

The Telegraph coverage can be found here

Recession Tracker

The BBC have a 'Recession Tracker' site that provides up to date data. It would be a good idea to visit this site regularly.

BBC Recession Tracker

UK Economy recovering?

This link to the Tutor2u Economics blogs looks at the unexpected early recovery of the economy from recession.
Lucky escape for Brown if it's true!
http://www.tutor2u.net/blog/index.php/economics/comments/video-clip-growing-signs-of-economic-recovery/#extended