According to NIESR’s report this morning, persistently weak demand is maintaining high unemployment, and may lead to a permanently higher rate of joblessness.
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The economic argument in the UK can be boiled down to this: Are we in a government deficit crisis which, while its being reduced, is leading to a weakness in demand or, do we face a demand crisis which is making it harder to reduce the deficit.
Either way, while the deficit is a problem for the long-term health of the economy, so is unemployment.
And, according to NIESR’s report this morning, persistently weak demand is maintaining high unemployment, and may lead to a permanently higher rate of joblessness.
The National Institute of Economic and Social Research report says:
“The weakness in demand this year is expected to translate into a 0.3 per cent fall in the level of employment.
“This adds around ½ percentage point to the current unemployment rate, peaking at 8.9 per cent in the fourth quarter of 2012, and a slow decline starting from 2013.
“Although we do not report forecasts for the youth unemployment rate, we expect it to continue to rise throughout the rest of this year.
“In our forecast there is a permanent increase in the equilibrium unemployment rate as a consequence of the increase in long-term unemployment experienced in recent years.
“By 2016 it will gradually decline to 6.4 per cent, which is still almost 1 percentage point above the pre-crisis level.”
NIESR also find there may also be a structural loss in productivity:
“Productivity in the first quarter of this year is still 1½ per cent below the level prior to the onset of recession. In the 1980s and 1990s, productivity was 13 and 15 per cent higher, respectively, at the same point in time. We do not expect any convergence on past productivity perfomance over the next few years.”
• Cameron is pricing the young out of education and consigning them to the dole queue 14 Dec 2011
• Record NEET figures the result of Osborne’s ignorant, short-sight ideology 24 Nov 2011
• Stories from the economy, or: The prospects for young people, and other grim tales 17 Nov 2011
• Million young unemployed figure highlights enormity of the situation hitting our youth 16 Nov 2011
• IMF: Cutting the deficit too fast causes higher unemployment 19 Sep 2011
The coalition has taken the view that the deficit needs to be reduced as quickly as possible, while implementing measures to reduce unemployment while necessary.
However, unless joblessness takes higher priority, fewer of us will be working to support more people on unemployment benefit, and the end of the hard times will be further from sight. The government shouldn’t ignore one long-term problem for the sake of another.
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31 Responses to “NIESR: Weak demand is leading to permanently higher unemployment”
Ash
Call me cynical, but surely the Tories have no interest in tackling unemployment?
High unemployment will help create a more ‘flexible’ and ‘competitive’ labour market – i.e. one in which it’s easier to hire and fire people, and to pay them lower wages.
High unemployment will help keep inflation under control – a key issue for the Tories, especially when interest rates are so low and there’s the prospect of more QE and further rises in VAT.
High unemployment pushes up the welfare bill, helping to make structural cuts appear necessary.
High unemployment provides the government with an army of scapegoats. Everybody ‘knows’, after all, that unemployed people are lazy, scrounging bastards living the high life at everyone else’s expense, dragging the economy down and driving spending out of control.
I suppose the Tories would quite like taxes to be lower, and high unemployment doesn’t help with that. But they’ve never been too bothered if VAT has to rise, and on balance I suspect they think the value to the rich of a ‘buyer’s market’ in labour is higher than the cost to the rich of keeping a large pool of desperate people out of work.
Foyer Federation
A NIESR report shows that demand not supply side problems R behind the UK labour market weaknesses http://t.co/TabnMc4B
Foyer Federation
It’s not the supply of young people’s talents but lack of opportunities 2 develop them driving high unemployment http://t.co/TabnMc4B
157 Group
It’s not the supply of young people’s talents but lack of opportunities 2 develop them driving high unemployment http://t.co/TabnMc4B
Siobhan Hawkeswood
It’s not the supply of young people’s talents but lack of opportunities 2 develop them driving high unemployment http://t.co/TabnMc4B