When good intentions destroy jobs

Allister Heath

AIN’S unemployment crisis is a national scandal that must urgently be tackled. The two major issues are long-term unemployment (which has been a nightmare for years) and youth unemployment, which has increased substantially.

The key problem is that the number of jobs has been falling in recent months while the number of workers keeps on growing. The latest figures show that employment fell by 178,000 on the quarter and by 47,000 on the year to reach 29.1m, a 0.2 per cent drop and the first decline since early 2010. Losses were concentrated among part-time workers, pensioners and the UK-born. There was only one piece of non-bad news: the total number of hours worked actually rose slightly on the quarter but fell slightly on the year. The demand for labour has thus been roughly constant over the past few months, suggesting little GDP growth but no collapse.

The public sector has clearly failed to introduce the pay freeze that David Cameron has demanded. In the three months to August 2011, average total pay in the public sector, excluding nationalised financial services, rose by 1.7 per cent on a year earlier (and two per cent excluding bonuses). This helps explain the accelerating rate of layoffs in the state sector: civil servants are choosing to retain fewer people but pay them more.

There were other worrying developments. Shockingly, the figures suggest that there was an eight per cent quarter on quarter collapse in the number of pensioners in work. Were there a huge number of sackings of older workers – dressed up as retirement – prior to the change of law which now means companies can no longer force a worker to retire when they reach 60 or 65? This could certainly explain part of the drop. Most likely, the figures are just too enormous to be correct.

The reduction in part-timers can be explained in part by the fact that a lot of the public sector workers who are losing their jobs or not being replaced are part-timers. Employers may also have been preemptively reducing their demand for agency workers, ahead of the drastic increase in the red tape and cost of employing them.

The real scandal in yesterday’s numbers was the fact that the jobless rate among young people aged 16-25 years is now 21.2 per cent in the UK, higher even than the 20.4 per cent in the Eurozone. The last few months are the first time in over 20 years that the UK’s youth jobless rate has exceeded the Eurozone and European Union averages, as Citigroup reminds us. The UK jobless rate was 6.5 percentage points below the Eurozone as recently as in 2004. The UK used to have much lower youth unemployment in the days when we enjoyed a more flexible and deregulated labour market; not surprisingly, as our own regulations have become similar to those of continental economies, so has youth joblessness. As the Unquoted Companies Group points out, many unskilled young people with no experience have been priced out of the labour market by well-meaning but tragically counter-productive policies to try and boost their incomes and rights. This a tragic tale of good intentions gone wrong. Britain’s youth doesn’t need more QE or a fiscal stimulus; it needs better education and a bonfire of the rules and red tape that are discouraging firms from employing them. George Osborne needs to get his thinking cap on – and stand ready to confront Brussels.

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