IT Management

Impact of recession on UK Labour Market



Impact of recession on UK Labour Market

1. Introduction

The UK, the Euro area and the European Union as a whole all entered 2009 in recession. There is a possibility that this recession will be the deepest and longest lasting since the Great Depression. We expect negative growth to continue in the UK for several more quarters at least, although how long it does so will depend on the effectiveness of the various fiscal and monetary stimuli, including 400 basis points of cuts in interest rates that have been undertaken recently. For most of the time since the turn of the millennium the UK labour market had performed very well on a variety of measures, including employment growth and unemployment. Between January 2000 and April 2008 employment grew by nearly two million from 27,310,000 to 29,541,000. Over the same period the employment to population rate (EPOP) grew from 59.3% to 69.3%. The level of unemployment was little changed although the unemployment rate fell from 5.8% to 5.2% as the labour force increased. It wasn't all good news, because youth unemployment, particularly of 18-24 year olds, increased from 12.7% in 2000 to 14.5% in 2008, whereas the youth rate declined across the rest of the OECD. This should all be placed in context though. Before the onset of recession, at the start of 2008, Appendix A shows that unemployment in the UK at 5.1% was still higher than in Austria (4.0%); Denmark (3.2%); Ireland (4.9%); Japan (3.9%); Netherlands (2.8%); Norway (2.5%) and USA (4.9%).

The UK labour market performed well on these indicators in comparison to most other EU and OECD countries. Indeed, Pissarides (2006) described the recent performance of the UK labour market as a "European success story". Figure 1 plots the unemployment rates for ten countries (Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the UK and the USA) for the period 1960-2007. It is apparent from these data that:

pre-1980 the UK had lower unemployment rates than the US. This pattern reversed between 1980 and 2000. The reasons for this switch still remain unclear.

UK unemployment rates track closely those in Australia and Canada.

UK rates have generally been higher than those in Japan, Sweden and the Netherlands. Since 2002 rates in Sweden have been higher. d) Since the early 1990s UK unemployment rates have been below those in France, Germany and Italy whereas the UK had generally higher rates before then.

The situation in the UK labour market has worsened markedly since April 2008 on every measure. Unemployment increased by 300,000 between April and November 2008 and from 5.2% to 6.1%. The outlook for the UK labour market is grim.

Labour markets have also loosened sharply over the last year in a number of other countries since the start of 2008, especially in Ireland (+3.4 percentage points), Spain (+4.1pp), Sweden (+1.2pp) and the United States (+1.5pp), with the numbers in parentheses the percentage point increase in the unemployment rate between December 2007 and the ...