Job loss tally still rising as pay rate slips

UNEMPLOYMENT is expected to show another sharp rise this week when official data is released on Wednesday, raising fears about consumer demand and the effect on the economic recovery. <br /><br />Economists expect the broader International Labour Organisation (ILO) measure of unemployment &ndash; which is seen as a truer picture of the state of the British labour market &ndash; to rise by more than 200,000 again in August, taking the number of jobless to 2.5m or eight per cent of the population. <br /><br />The unemployment rate is likely to have been boosted by school and university leavers who have been unable to get a job in the current economic climate.<br /><br />The narrower claimant count is also expected to have increased at a similar rate to that seen in July, pushing the number claiming Job Seeker&rsquo;s Allowance to 1.59m.<br /><br />But while signs of an economic recovery are well under way, unemployment is expected to continue rising until at least the second half of 2010, peaking at more than 3m. Indeed, activity will need to be much stronger and much more durable if it is to prevent further job losses. <br /><br />Reflecting the tight labour market &ndash; where jobs are in short supply&ndash; average earnings growth slowed to 1.8 per cent in June from 2.2 per cent and the drop in pay settlements suggests earnings could fall further, said Capital Economics. (See Chart.)<br /><br />But this reduction in pay growth is also a reflection of the increased flexibility in the labour market over the past decade, which has allowed firms to cut pay rather than jobs, said Barclays Capital&rsquo;s Simon Hayes.<br /><br />The impact is that employment has fallen by 1.7 per cent so far in the current recession, while GDP has dropped by 5.7 per cent. In the 1990s recession employment fell by 3.4 per cent even though GDP slipped by only 2.5 per cent.