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”
Richard_aldridge
Who exactly is freezing and starving, that is about the most pathetic political rhetoric ive ever heard. Times are tough but its actually quite ignorant and offensive to those in countries who actually are freezing and starving! At the end of the day your right. Coalition has choked recovery somewhat in terms of growth. But they are making necessary cuts, you cant spend an extra 5-10% to achieve 2-3% growth (if your lucky). You really dont need to be good at math to understand that concept, especially when your already paying foreigners BILLIONS in interest on our debt, its not logical or sustainable. The problem with u lot is u always put the politics before the economics, which is agood idea seen as so many people only read the headlines and not the facts, but there is a core in this society who take a long term view, not because we have shares or are mega rich or were born into millions, but because we care about our country and the debts our kids will inherit and we’re not haunted by the idea that someone, somewhere, is happer than I am.
Anonymous
Who? That you even need to ask, when “voluntary” disconnections of utilities are soaring and food banks are being overwhelmed is pathetic.
Your outright denial of the damage being done to the poor in this country is just that – you REFUSE to see anyone not in your privileged, comfortable status. The UK economy is FAR more than “2-3%” down from it’s peak, your politics killed off any recovery. The UK debt is low-interest and with a long maturity time. We’ve already double-dipped, and you are trying to drive downwards.
Right-wing international bodies are telling Cameron he’s an idiot for being stuck on plan A, so I don’t need to do it. And yes, there most certainly IS a core – it’s called “The left”. We haven’t been in power since 1978.
Your kind, the Feral 1%, who have their shared, and are mega-rich, and are determined that only their kids are allowed to be happy, have leeched the wealth from workers into capital since the 70’s – this is documented fact – and are now desperate for this to continue, despite being the root cause of the economic collapse.
The last time things were this unequal was the Great Depression. And there, things WERE turned around by a political realisation that the situation was unsustainable. And yet you’re insistent today it MUST be sustained at all costs. That nothing can touch your Corporatism and your Corporate Welfare payments.
Never mind those poor seeing their already-minimal income plummet, never mind the poor dying in the corner. They’re not Human, after all. They’re not /Tory/.
Sam Watson
Simple Keynesian economics in the news http://t.co/jtEy3BH0
Lee Hyde
The price we're paying for the mad dash for austerity may be locking in high unemployment: http://t.co/o98tfGoF #PMQs
Brian Tomkinson
The price we're paying for the mad dash for austerity may be locking in high unemployment: http://t.co/o98tfGoF #PMQs