The message from the government is clear. A booming labour market represents the silver lining to the dark cloud hanging over the economy. There are more job vacancies than there are people officially classified as out of work and firms are paying signing-on bonuses to attract staff. What’s more, as Boris Johnson said repeatedly at prime minister’s questions last week, an unemployment rate of 3.7% is the lowest since 1974.
No question, the labour market is in better shape now than ministers expected even six months ago. Back then there was concern that the end of the Treasury’s furlough scheme would lead to large numbers of firms going bust and a significant increase in unemployment.
So nervous was the Bank of England at the impact of the end of wage subsidies on unemployment that it delayed pushing up interest rates. Threadneedle Street has recently taken some stick for failing to act more quickly, but it was a reasonable call to make. A wait-and-see approach made sense.
There are, though, two problems with the idea that Britain has returned to the balmy days of postwar full employment. The first is that the jobless total is expected to rise as a combination of falling living standards, higher taxes and rising interest rates push the economy into recession. The Bank has been wrongfooted in the past by the continued strength of the labour market, and it could be guilty of excess pessimism this time too. That said, its assumption that three years of nugatory growth will result in the jobless rate rising to 5.5% by 2025 could easily come to pass.
The other problem is that the full employment narrative only holds true for the better-off parts of the country. As a study by researchers from Sheffield Hallam University shows, for the bits of Britain most in need of “levelling up”, full employment is a myth.
The report seeks to come up with a figure for the real level of unemployment in Britain and is the sixth in a series that has been published every five years since 1997. By adding in the hidden unemployed – people who are on incapacity benefits but who would be working in a truly full employment economy – the researchers come up with an unemployment total of 2.34 million – a million higher than the government’s preferred yardstick for joblessness. These are not fraudulent claims and they account for slightly less than a third of the headline total of incapacity claimants of working age.
Hidden unemployment has come down from just over a million in 1997. Some reduction was to be expected because in the 1980s and 1990s workers who lost their jobs in manufacturing or in mining were “parked” on incapacity benefits in order to massage the unemployment figures.
But that generation of workers has now retired and the fact there are still almost 800,000 hidden unemployed means the original cohort of redundant industrial workers on incapacity benefits has been replaced by the generation that followed them.
A geographical breakdown of hidden unemployment shows it is highest in areas affected by the deindustrialisation of the 1980s and 1990s. Wales has more hidden unemployed (83,000) than jobless benefit claimants (67,400). In Scotland, adding in the hidden unemployed results in a real unemployment level of 224,000 compared with the official claimant total of 122,300. There is a similar pattern in the north-west and the north-east of England.
The report divides the country into three distinct parts: “full employment Britain”, where 20 million people live and the real level of unemployment is below 4%, and 14% of joblessness is hidden; “middling Britain”, where 31 million live and the real level of unemployment is between 4% and 8%, and 34% of the total is hidden; and “high unemployment Britain”, where 14 million live and real unemployment is above 8%, and 42% of the total is hidden.
There are pockets of “full employment Britain” outside the south-east. York and the Ribble Valley feature in the list of the 20 districts with the lowest estimated real unemployment. Richmondshire, where the chancellor, Rishi Sunak, is the MP, had the lowest real unemployment of all at 1.5%. “High unemployment Britain” is dominated by the old industrial heartlands and seaside towns. Blackpool (14.7%) has the highest real unemployment level in Britain, followed by Blaenau Gwent (12.2%) and Knowsley (11.8%).
Prof Steve Fothergill, one of the report’s authors, said: “While unemployment is clearly down on levels during the pandemic and down on the levels of the 1980s and early 90s, the Treasury, the Bank of England and economic commentators should not fool themselves into believing Britain has reached anything like full employment.”
In theory, people living in high unemployment areas should move to areas where there are more jobs available, but in reality this doesn’t happen. The economic consultants Miraj Mistry and Paul Ormerod looked at more than 300 local authorities to see whether the gap between high and low unemployment areas narrowed over time. They found that it did, but at a glacial pace.
Clearly there is not going to be much levelling up if the economy goes into a tailspin, because those areas with the weakest labour markets are likely to be hit hardest. But growing the economy would not be enough to narrow the gap between full employment and high unemployment Britain. Nor is it simply a question of spending billions of pounds on infrastructure projects.
What’s needed is a combination of the macro (regional aid, public investment, state aid, procurement) and micro (tailored support to re-engage those on incapacity benefits with the world of work). As Fothergill says, there has been little sign so far of the additional funding and action on a scale commensurate with the enormous challenge.
