Back to the 1970s

The latest UK unemployment data was published yesterday just as the Chancellor was getting ready to deliver his 2009 budget speech. It showed the current dire state of the UK labour market. The headline unemployment rate increased to 6.7% . The even more accurate claimant count (this is explained on page 103 of the book) rose by 74,000 in March. There is no doubt, however, that the most worrying figures were those that showed that we now have 820,000 aged under 25 who are unemployed and that there was a big increase in the number of long-term unemployed. If we put these two things together the data showed that we now have 100,000 people aged from 18-24 who have been unemployed for at least a year. This is very bad news for them and for us all eventually as the impact of being unemployed for a long time is very serious. It ca have a long-lasting impact on those involved. This issue is explored on page 101 of the book ("Reading and Understanding Economics").

"Unemployment causes great suffering to those involved particularly when a severe economic downturn results in a sharp rise in those people out of work. The misery inflicted is particularly severe because the incidence of unemployment among individuals and households is very unequal. While some people will go through their entire working life without ever suffering a spell unemployed others will have to endure regular periods of economic inactivity. The longer someone is unemployed the worse it gets. They are likely to suffer a loss of self-esteem and maybe find themselves eventually cut-off from the labour market for ever".

All the evidence shows that a period of long-term unemployment is especially harmful to the young. It is essential that the Government acts swiftly to reverse this trend before those affected suffer irreversible damage. The Chancellor did announce some new initiatives to offer training or education to the young people involved. These are reminiscent of schemes like the 1970s Youth Opportunity Programme (YOP) that offered the young unemployed chances to sweep leaves or clean the streets. The problem is that the young unemployed need far more than this work experience can offer. They need the opportunity for real work that is properly paid. If this is not forthcoming we could end up with a generation that will be permanently blighted by having endured this early period of unemployment. We need the Government to show real leadership in this area and this must be done quickly.

A time of austerity in Ireland now and coming to the UK vey soon

The credit crunch has had a serious impact on public finances right across the globe. In response to their deteriorating budget position the Irish Finance Minister Brian Lenihan unveiled a series of tough measures designed to bring the Country's budget deficit back under some kind of control. The fiscal moves included sharply higher income taxes, higher rates of Capital Gains Tax and Capital Acquisitions Tax, rises in excise duties on cigarettes and size able cuts in unemployment benefit. In terms of the economy he had a gloomy forecast with output expected to contract by 8% this year. What is happening in Ireland now could soon move onto the UK in a year or so. The UK's fiscal position has also deteriorated badly in the wake of falling revenue (due to lower incomes and profits) and rising expenditure (the bailouts and higher benefits). So it is likely that just as the UK is coming out of recession in 2010 there will be the need to raise taxes and slash government spending. This could act to halt any recovery that is starting to show at that time. No wonder that the stock market remains very nervous. If investors expect 2010 to be the start of another period of rising economic activity with higher corporate profits and dividends they might well be disappointed.