UK Unemployment on the go!
Unemployment figures across UK are expected to rise to 3.2 million, or ten percent of the work force, according to a latest report by the British Chamber of Commerce.
The report also suggests that the next month budget is the last chance for the government to try and lift the economy out of the recession.
In a conversation with David Kern, Chief Economist of the British Chamber of Commerce, he suggests that unemployment figures are expected to rise until the third quarter of 2010.
David Kern
What are your views on the rising unemployment in the UK?
The rising unemployment is an unfortunate cause of the recession. The economy is slowing, infact it is going into negative territory. And inevitably when this happens, people have to lay off workers. We are now seeing a downturn, which is worse than the 1990’s downturn, not as much as the 1980’s though. And one of the consequences is that unemployment will go up. This is of course a forecast or a prophecy but my forecast is that unemployment in UK will go up to more than 3 million or as much as ten per cent of the work force. This would be very unfortunate but it is an inevitable consequence of the recession.
Do you think that the rising unemployment affects men and women equally?
It’s difficult to say. Probably yes, but it is too early to say. I think in some sectors men would be more badly affected and vice versa, for example, in areas of service sector where women are more heavily unemployed than men, possibly in the catering industry. But the recession in the UK is so widespread that it is no longer very helpful to focus on a particular sector or on men and women. And I don’t think you can do much about unemployment as such, unless you end the recession. So, really the problem is the recession and at the moment my expectation is that the recession will continue to at least two or three quarters. One thing we have to remember about unemployment is that, unemployment is what many countries call a “lagging indicator”. In other words, the changes in the economies occur before the changes in the unemployment. So we know that changes in the economy occurred earlier in the year but the big changes in unemployment occurred later. So on present trends, although the recession in activity or output will come early in 2010. Unemployment will continue to increase until the third quarter of 2010. So, there will be a period when activity will start reviving but not very fast and in that period unemployment will still go up even though activity will be still past its low point.
What should the government do in order to come out of this recession that is termed as the “worst” recession?
Well, it’s the worst for past 20 years. It’s not as bad as it was in the 1980’s. But I don’t think it’s worth talking about that. It was a pretty bad recession. But one of the problems at the moment is, and it is difficult to admit, is that nobody is entirely certain what needs to be done. In other words, nobody knows certainly that the normal medicine would work as well as one would like to. They are already doing a lot. There’s been fiscal expansion, support from banks and there will be more. It’s a global recession and it’s not just UK. Everywhere, the governments are doing everything required and things aren’t working. So it would be a bit arrogant to say I know what needs to be done. There’s a decline in activity and you need to boost activity but what one can say with some degree of confidence is that the problem has originated in the banking sector. Getting right the banking sector is a necessary condition to get the economy right. It’s not an easy question to answer. The experience we have from Japan in the 1990’s is not very helpful. So the right measures are being taken but there are disagreements. Clearly we need expansionary policies.
One problem with the present situation is that we have to do in the short term many things that we know will make our problems in longer term worse. I mean we know in the longer term we will need to save more and yet in the short term its silly to tell people to save. In many ways we engage in activities that we know will make our life more difficult in future. We know that the present expansion of money in the economy increases the risk of inflation in the future but in the short term the risk of deflation, of prices falling is even bigger. So, we are not in a particularly pretty situation and we are not unique. The Asian powers are facing similar problems and we have to find a solution and we are not entirely certain that we have done enough. In five years time we might realize that the efforts we made are not helpful. So basically when the activity is falling we need to try to boost it.
Finally, every year there are thousands of graduates who come out of top business schools, looking for a job, mostly in the banking sector. But according to the present trend where jobs are being cut, people are being laid off, how do you think there is a balance between these two extremes? Where do you see these students going?
Well, In the UK or also in America, there would be what economies call restructuring. I think it seems very likely that when we come out of the recession, the banking and the finance sector will be smaller. And other sectors would be bigger. And it is not a bad idea that it is no longer automatically the case that the best students go for banking or investment banking or into all sorts of the fancy financial engineering. Banking won’t disappear, we still need banking. But within banking there will be a distinction between commercial banking – the traditional banking activities and some of the fancier stuff which have used up a lot of brain power but not with very good consequences for everyone. But I think the students are very clever, they know that the market for investment banking is diminishing, the bonuses are no longer as big as they were, and it’s sometimes non-existent.
Initially, there would be some unemployment among graduates. They will have to accept jobs for which they are over-qualified. But things would change gradually. The more young people go to university, the less must be expectations that a degree will straight away push you up to the ladder. Young people have to decide whether a degree is not necessarily for advancement. A degree is necessary for widening your mind.
Initially unemployment will go up; many clever students will start with jobs for which they are over qualified. But if they are good, their employers will find they are good and they would go up the ladder, it has happened in the past and will continue to happen always.