Yesterday we discovered that growth in the UK had shrunk by the most in 50 years. Yet the dole queue is only half the length of the 3.5 million out of work in the late eighties. What’s going on?

At first glance the UK’s employment record holds firm against historic and geographical comparisons. These numbers have been extrapolated to give comfort and support to other equally contentious green shoots

But in this piece I’ll be looking to explode the myth and suggest that, even if the numbers are correct, all is not what it seems. The follow up article will look at the implications for other parts of the economy.

Global Comparison
On the global stage the UK stands tall and proud with a better record than the US, Russia and the main European economies. Spain tops the leader board with a massive 18% unemployed; Russia is in silver position with over 10%, followed by a group of G7 countries spanning the 9% mark. And if I were Gordon Brown (what a horrible thought) I’d even claim that “our jobless rate is lower than Japan’s.”

Apples & Pears
Of course that last bit is rubbish, but it wouldn’t look out of place at the dispatch box.

Part of the explanation for the huge disparity between the jobless figures of previous recessions and now (and for my claim that we had a lower figure than Japan) is that the UK has two measures of unemployment. These were covered in my piece on UK Economic Data Releases, but briefly, the claimant count measures all those eligible to claim benefits; the unemployment rate is survey-based and includes those out of work but unwilling, or unable, to claim benefits.

This didn’t use to be such a big issue (that wasn’t meant as a pun) in the past when the figures were more honest and not too far apart. Now though, the different measures are about as close as Peter and Jordan and provide the ambiguity so loved by politicians. You can see in the chart that it was only from the late nineties (when Gordon Brown came to power) that the two measures went their separate ways. This was mostly due to the ‘re-classification’ of benefits where a lot of unemployed became ‘sick’ or ‘disabled’; they still got paid but no longer appeared as unemployed. A political master-stroke.

So back in the late eighties and early nineties it didn’t matter a whole lot which measure was used, there were 3.25-3.5 million with time on their hands. Now, there are either 1.54 million or 2.26 million out of work (that’s an unemployment rate of either 7.2% or, if we want to beat Japan, 4.8%) depending on whether you’re David Cameron or Gordon Brown.

Workers Unite To Create A False Picture
Even the higher figure of 2.26 million doesn’t look too bad considering the state of the economy. What’s going on; why aren’t firms dumping workers to cut their costs?

It seems that faced with the stark reality of an economic collapse, firms and their employees are trying to work together for the greater good. Company blue-sky thinkers have been coming up with clever wheezes to keep good employees whilst paying them less.

The more mundane measures include pay freezes, pay cuts or going onto a 4-day week. But the more inventive include BT who, after laying off 15,000 workers and imposing a pay freeze, have asked some workers to volunteer for secondment to other firms for a period of time.

Spanish bank BBVA are offering employees 30% of their salary to stay off work for between 3 to 5 years with the promise that their job will be there when they return. Other options were a shorter working week or time off with the family. This might look a pretty compelling offer if it wasn’t for Spain’s 18% unemployment rate; over there people would kill for a job!

The prize for the cheekiest measure must go to British Airways for asking staff to volunteer for a period of unpaid work. Less controversial measures include a two-year pay freeze and asking pilots to accept a cut in salary.

This excellent cartoon, reproduced by permission of Charles Peattie and Russell Taylor, sums it up.

Conclusion
It’s great to see that both sides have learned from the past; employers that it’s better to hold onto key workers for when the recovery comes, and workers that working with their employers might just keep both of them in a job.

However, this leads to two main points:

1. The fact that more people still have a job this time around doesn’t mean that they have more spending power. Much has been made of the boost to borrowers on variable rates, from the temporary dip in their interest payments. However, an unknown, but increasing number of workers are suffering from a drop in earnings.
2. Keeping staff on board ready to take advantage of the economic recovery is great, just so long as there is a recovery. It’s easy to see firms holding off from redundancy notices if they believed in the green shoots of May.

But if the good news peters out and a double dip looks to be on the cards I wonder how many firms will order a mass batch of P45s. Some firms, like Lloyds Bank, have been serial offenders over the past few months. Yesterday Lloyds announced a further 2100 job cuts, bringing its 2009 total to 7000. Last week Corus added 2000 redundancies to the 2500 in January, and just this morning Diageo sprang 900 job losses on its Scottish branches.

Finally, take a look at this chart plotting GDP against unemployment:

Even without yesterday’s GDP horror-show it’s obvious that the fat lady is nowhere near singing yet. In the 1980s unemployment doubled from 5.9% to 12%; the 1990s saw a rise from 7.2% to 10.8%. With the rate currently at 7.2% it looks like unemployment is set to get a whole lot worse in the UK.

Next, I’ll look at the implications for other parts of the economy and how can I trade the employment myth.