Sun Oct 23rd, 2005 at 02:37:00 PM EST
Over the past few months on European Tribune, we have several times taken a hard look at UK unemployment figures. Not because we enjoy UK-bashing, but because the conventional wisdom that underlies practically all economic reporting and commentary informs us ceaselessly that :
- at 4%-5% unemployment, the UK enjoys full employment;
- this is due to a "flexible" labour market.
What did we reply to this? We pointed out here
that job creation in the UK over the past decade has depended fairly heavily on a Keynesian spending spree that has seen the creation of 861,000 public-sector jobs. This fact, that doesn't bring much support to the "flexibility" explanation for the low unemployment rate, has somehow flown under the media radar. Thanks to European Tribune -- and thanks very particularly to Jérôme -- it became rather more visible, making it to the WSJ editorial page.
The other point
we have made is that the official UK unemployment rate is understated because a large number (relative to other countries) of people of working age are inactive.
It would appear that far more people of working age in Britain suffer from long-term sickness or disability than in the Eurozone. This study (pdf) from researchers at Sheffield Hallam University, estimates the diversion from unemployment to sickness benefit may be as high as 3.2% of the working-age population (August 2003).
Well now. Perhaps we were nitpicking about the metrics instead of facing the truth and getting over it and moving on and all that sort of thing the right keeps telling us we need to do.
Except that here's some serious nitpicking from the OECD in their recent (12th October) report, Economic Survey of the United Kingdom 2005:
Seven per cent of the 25-54 year old men are now inactive outside the labour market, many more than three decades ago. Solid growth since the late 1990s has brought down unemployment but not inactivity, with 2½ million currently claiming incapacity benefit.
("Solid growth" plus public-sector job creation, they should have said, but we'll let them off that bit).
Inactivity because of illness or disability
As a percentage of population in each age group, 2003
(Click to enlarge)
The graph-and-stats junkies among you (you too, Izzy), will have picked out the OECD mean in the middle of each set, and noticed that "failing" France and Deutschland are consistently below that average. The really kewl kids in the klass may already be pondering the fact that a number of countries that are often cited as examples of economic success and a labour market licked into shape (apart from GBR and the US, anyone for Austria, Denmark, Finland, Ireland?), figure above the average.
What does this mean? That in France and Germany, for example, benefits for the long-term unemployed are sufficient for them not to try (in desperation) to get the doctor to sign them off sick or disabled (qualifying them for other benefits). In Britain, with a "neoliberal" unemployment benefit system, the long-term unemployed in the former industrial regions go massively on the sick dole -- and are no longer counted as "unemployed". Incapacity Benefit acts as a sink for the long-term unemployed in areas outside the tight labour market of London and the South-East, and it doesn't show in the unemployment rate.
The OECD report goes on to describe the British government pilot scheme, Pathways to Work, designed to help unemployed people on Incapacity Benefit find a job (pilot scheme which is due to be progressively rolled out throughout the country). OK. But what is clear is that the government recognizes that a significant number of inactive people have been diverted from the unemployment numbers to the sick and disabled numbers, and knows that the 3.2% estimate for this diversion by Beatty and Fothergill in the Sheffield Hallam University study quoted above is by no means exaggerated and that the true percentage of unemployment in the UK is not 4.6% but probably between 7% and 8%.
Have we heard this anywhere? Just one example of how we haven't: the OECD report came out on October 12th. The next day, the 13th, Gordon Brown published his pamphlet showing how "old" Europe was lagging behind the winners, those who had understood what globalization was all about and had, you know, flexible labour markets.
The UK unemployment number cited by Brown? 4.6%, you bet.