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Broader Measure of Unemployment over 3 million

October 15, 2010

Paul Gregg

 

This week’s unemployment numbers show a flat labour market. After a buoyant first six months of year, the latest data show flat unemployment and vacancies falling back.  The poor unemployment picture is far worse when the numbers working part-time but want full-time work are considered. These people are often called the underemployed, not fully unemployed but working far fewer hours than they would want. The US has a tradition of including the underemployed alongside the fully unemployed to create a broader measure of unemployment but it seems sensible to weight them less because they are working. In addition those who are inactive, because they think there are no jobs to look for, often called discouraged workers, are also added to this broader measure. This broader measure of unemployment, giving the underemployed part-time workers a weight of a half, gives a figure of just over 3 million (3, 066,000), whilst the LFS unemployment measure is just under 2.5 million. Further, whilst the LFS measures showed a small fall in the latest data this broader measure showed a small rise of 16,000. The measure highlights how underemployment, part-time working by those who want to work full-time has help to keep the regular measure of unemployment down through this recession.

However, the bleakness of the current picture can be over-stated. Last Autumn, large numbers of young people stayed in post-16 education rather than look for work, far more than usual and far more than captured by the normal seasonal adjustment of the data would capture. Hence unemployment fell and inactivity (students are mostly counted as inactive) rather than employment rose. This Summer those on one year courses have returned to the labour market partially unwinding last years surge of studying. Hence inactivity has been falling recently and unemployment is flat despite decent jobs growth. This Autumn again we might expect a surge in studying although less marked than last year. This, combined with an expected surge in spending at Christmas ahead of the January rise in VAT, should lead to a more positive story on unemployment.  However, this is likely to be short lived and the real jobs crunch will hit early next year with rising taxes and public spending cuts.

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