By Jeremy Smith
Today we learn from the Office for National Statistics that 2.5 million were still unemployed in the last quarter of 2012. The UK economy is failing to use the skills and resources of our people to best effect in the common interest. This is to a large extent because the government’s economic policies are wrong.
With 2.5 million still unemployed, the problem is that we have a shrinking economy, largely because we have failed as a nation to invest in our future, and are trapped in the downward spiral of austerity and lack of vision. We still have perverse economists who argue, in the teeth of the evidence, that the public sector is ‘crowding out’ the private sector – and this at a time of high levels of private sector debt and mass unemployment!
No wonder we cannot invisible-handedly create the goods and services and income required to ‘deleverage’ these high levels of private debt. We need government to take the lead in a massive programme of investment to create the basis of a new, sustainable economy.
The stark truth is that – despite a working age population that has grown continuously – the overall economic value (GDP for short) that we are producing has hardly grown since 2006, and has fallen since 2007. The ‘value of GDP per worker’ is below the level of 2004.
Worse still, the ‘value of GDP per member of the whole workforce’ – employed plus unemployed – has crashed by 6.72% since the peak of 2007. And since 2003, on this indicator we have made no progress whatsoever. We produce the same value per workforce member as we did 9 long years ago. This is because we are wasting the potential of over 2 million people.
Chart 1 – GDP £ per economically active person and per person in employment
In our recent report, “Ailing economy, failing solutions”, we said
Traditional productivity methodology has a fundamental flaw when it comes to measuring the performance of a national economy with a high level of unemployment. This is because productivity methodology ignores the wasted capacity of a nation’s economically active, but unemployed, population
In effect, traditional productivity methodology implicitly assumes that there is no unemployment, or that by reducing the volume of labour per unit of output, the displaced employees will quickly be more productively employed elsewhere in the economy – which is not borne out by reality
We therefore argued that by far the most significant high-level measure of productivity for a national economy is the value of ‘output’ (represented by GDP) divided by the “economically active” population, i.e. the sum of those in employment and those unemployed but seeking work.
The waste caused by unemployment
We have looked at the data for the decade from 2002 through to 2012, and Chart 1 at the head of this blog shows the difference between GDP per person in employment, and GDP per ‘economically active’ person. For this we have taken the GDP in the 4th Quarter of each year, and the number of economically active etc. from the September to November figures for each year, which is the latest period we had for 2012. While these periods do not map perfectly, they are very close and give an authentic picture.
The gap between two lines in effect represents the waste caused by unemployment. It will be seen that the difference is much wider post financial crisis from 2008. Also, that while GDP per person in employment rose slightly from 2008 to 2011 (before dropping badly in 2012), GDP per economically active person (i.e. including the unemployed) remained virtually unchanged from 2008. No increase over 5 long years, and similar too to the levels of 2003 and 2004.
Here are the data in tabular form: