UK: Why falling unemployment numbers are a mirage

By Neil Patrick

Well, it’s Saturday again. On this day every week, I tend to draw breath after the week’s activities, fill myself with coffee and reflect on the week’s news and developments.

Naturally enough, employment news is high on my list of topics to digest. And today is no different. Except that today, I have good news to report…well sort of.

In the UK, we are being told that we’re experiencing falling unemployment and that this is a sign of an improving economy.

Unemployment peaked at around 8.5% at the end of 2011 going into 2012. It’s now around 7.7% based on the current 3 month rolling average, or just 7.1% if you look at the latest monthly figure. So it’s showing a steady fall, perhaps even speeding towards the ‘target’ of 7.0%.

Why do I say that 7.0% is a target? Because that, said new Bank of England governor, Mark Carney, in his ‘forward guidance’ in August, is the level at which the BoE will start to increase interest rates.

Merryn Somerset-Webb, Editor in Chief of MoneyWeek described this as, ‘A dim-witted policy based on a number no-one understands’. Quite.

Carney also said he expected the UK to reach this position sometime around 2016! So we are doing great - we’re already miles ahead of where the Bank of England thought we’d be. Erm…not quite.

This figure of 7% is not some sort of magical threshold at which suddenly the recession becomes history and we all return to some sort of financial nirvana. Far from it.

If the current trend continues, we’ll be at 7% sometime around the middle of 2014. And fully unprepared to bear the even greater cost of living increases this will bring, on top of the ones which have crushed most people’s spending power over the last five years.

But as I have talked about elsewhere on this blog, raw unemployment numbers do not tell the story of what is really happening. And achieving the figure of 7% means absolutely nothing.

We know that huge numbers of people - around two million - are currently under-employed, i.e. they are working, but not earning as much as they need or want to. But they are not unemployed as such, so they are not counted.

Many more have simply given up looking for work and disappeared off the radar all together. These are not counted either.

Meanwhile, hundreds of thousands of young people have decided to avoid leaving the ‘womb’ and have stayed within the education system, hoping that during their delay, the job market will improve and give them the win-win of higher qualifications and an improved jobs market. Yep you guessed it - another artificial diminution of the unemployment total.

Just about everyone who could afford to take and has been lucky enough to be offered any sort of early retirement package (senior public sector executives for the most part – no comment) has understandably jumped at the chance. So off they go too!

Once we factor in these aspects, you can see why the raw unemployment number is virtually meaningless as an indicator of the financial well-being of the nation.

Which would be okay if it were not being used by the BoE as a barometer to judge when we are all able to afford higher interest rates on our mortgages and higher inflation in the already massively overinflated and over-taxed costs of essentials like power, transport and food.

Meanwhile, these figures have caused a good deal of self-congratulation in government circles. The government knows just as well as you and I that these numbers are an illusion. But they are gambling on the belief that most of the electorate won’t spot the ruse.

And I fear their assessment about this may well be correct. Most people I think will not be interested in looking behind the numbers to see what is really happening and this blind spot will mean that many will be more inclined to accept the idea that the economy really is improving.

I’m sorry to say it’s just not true. It’s simply more lies and corrupted statistics.