The report suggests the real unemployment level is higher because there are many people unemployed but not entitled to unemployment benefits. (see also: What is true level of unemployment in UK)
In September, the employment rate fell to 72% and the official unemployment rate rose to 8.0%
Solutions to Unemployment1. Demand Side Policies.
Undoubtedly, the main cause of unemployment is the current recession and output gap. With demand falling, firms have spare capacity and so are employing less workers. This is why we have:
- 0.5% interest rates
- expansionary fiscal policy
- Quantitative easing.
An employment subsidy could be given to firms who keep on workers part time during the recession. This saves the government the cost of unemployment benefits and prevents workers being idle and losing on the job training. However, the danger of employment subsidies is that they may be misused by firms who see an opportunity to gain extra income. It is also difficult for the government to decide which workers / firms to subsidise.
Cutting Minimum Wages
With stagnant nominal wage growth, the minimum wage is more at risk of causing real wage unemployment. - wages above equilibrium levels. A cut in minimum wages could create extra job opportunities. However, there is no guarantee that cutting wages actually creates jobs. Since the minimum wage was introduced in 1999, successive increases were compatible with a period of falling unemployment. Cutting wages would also reduce overall demand in the economy, creating less demand for workers.
Education and Training of Long Term Unemployed.
Whilst the majority of current unemployment is cyclical, even before the current recession there were pockets of structural unemployment related to a lack of skills. Relevant skills and training programmes would help the long term unemployed get back into work. Few economists would have any objection to the principle of retraining the unemployed. It is essential the skills and education is highly relevant to the needs of the workforce. However, it is a policy often easier to say than actually do. I don't know a time when we haven't talked about the need to improve education and training. But, I do believe that in the UK, too much emphasis is placed on getting 50% of young people a degree when insufficient money is spent on vocational training.
Reclassification of Incapacity Benefits.
The report mentioned above, suggests that many long term unemployed have been given incapacity benefits when there are still jobs they could do. Rather than conveniently putting people on incapacity benefits, more attention could be given to retraining workers for non-manual labour. The potential cost savings of reducing dependence on sickness benefits are significant. Though it will be a difficult balancing act to prevent those really incapable of work being withdrawn from necessary welfare support. Also, this policy will not reduce the official claimant count, but will increase employment rates.
Flexible Labour Markets.
Many economists have suggested high levels of structural unemployment are due to inflexible labour markets. For example, if it is difficult to hire and fire workers this can discourage firms from employing workers in the first place. Arguably this is a much bigger issue in European countries such as France and Spain.
Shorter Working Week.
The theory is that if workers are doing 40 hour weeks, then reducing the week to 30 hours will lead to an increase in the number of workers employed. However, in practise, it is rarely as simple as that. The shorter working week can also act as hindrance to firms.
The geographical spread of unemployment is not as bad as in the 1980s, but the north south gap still exists. Of the top 20 areas of unemployment all are above the line from the Wash to the Severn. It is again manufacturing output in the UK's industrial heartlines that has been hardest hit. The fall in manufacturing output 13% is double the fall in GDP 6%. Subsidies / tax breaks may be need to encourage firms to open in relatively more depressed areas.
Weak Pound and Restructuring of Economy.
The weak pound does make UK exports more competitive. It may help manufacturing relative to the consumer sector. In the long term, when the global economy recovers, this boost in exports may help create manufacturing jobs in the north.
Related Posts on Reducing unemployment
Problems of UnemploymentProblem of Unemployment :
Unemployment is serious problem that our government faces. Our leaders are trying their utmost best to solve it wisely. If it is not solved sooner, a social revolution may take plea to have its solution. The main cause of unemployment is the repaid growth of populations. Since independence the populations of India has increased by threes times its total. When people multiply, there raises the problems of unemployment and it becomes difficult for government to provide employment to a sufficient number of people. As a matter of principle it becomes the duty of government to provide employment to all as far as possible and we are blessed that our government is taking keen interest to solve this series problem of today. As the growth of populations is going unchecked, jobs and services in a given field commonly remains insufficient. When our youths do not find employment despite their best efforts, they get irritated and feel disappointed.
There are three types of unemployment, viz., labor class who are not educated, educated persons without possessing any technical qualifications and technical persons such as engineers and technical. Let us implore them one by one.
In case of labor class there are lakhs of people who earn their livelihood daily and gather themselves on some specific place just to find daily employment somewhere. They are not disappointed to a great extends. Sometimes they find employment and sometimes they return to their houses without finding employment. They are habituated to adjust themselves with the circumstance, though they also become irradiated and disappointed sometimes when problems of food and clothing arise before them. This is the case with general labor of the cities. As regards the agriculture labor of the village, they’re also not disappointed to a great extent as they find seasonal employment very easily in the farms and fields of big farmers.
Since the number of educated persons is increasing day by day, we are not in a position to afford a venue of work for this growing number. As such our educated persons are very much disappointed when they wander dark roads in search of employment. As they do not possess any technical and practical training, they only try to find clerical job which are not sufficiently according to the increasing number of educated persons. It has become a very ticklish problem which is being faced by our government.
As regards educated persons, possessing technical qualifications, they tend to be frustrated when they do not find employment despite their best qualifications. There can be in no two opinions that they find their employment very easily on the merits of their technical qualifications, but according to the increasing number of such educated persons also become victims of unemployment. Education is a very good thing and one must be educated but the irony of it is that when we offer educations to young people we are not in position to offer jobs to them. This is the very cause of disappointment among our educated youths.
The educated youth should change their mind also and they should think of self-employment, rather than searching jobs and services hither and there wasting their energy. In this way very serious problem of unemployment may be saved to a great extent.