Unemployment starts to stabilise – at a cost

Jobless figures are steadying but with few new jobs and fears of renewed recession, how long can it last?

The number of unemployed people fell again during the last months of last year, confirming that the worst of the recession in the jobs market is over.

The total number of jobless stands at 2.46 million, some 3,000 down on the quarter. The unemployment rate, at 7.8 per cent, stayed steady.

Yvette Cooper, the Secretary of State for Work and Pensions, welcomed the news: "Unemployment is much lower than expected last year, reflecting the tough decisions families and businesses have taken to protect jobs, as well as the substantial extra investment in getting people back to work. But we know things are going to be tough for a while and we expect further increases in unemployment before the summer."

Most economists agree that the total could yet go higher, especially after the next election when it seems inevitable that further harsh cuts in public sector spending will be implemented. The danger of a "double dip" recession has not receded: in any case, low but positive growth such as the 0.1 per cent quarterly rise in GDP recorded at the end of 2009 will not be sufficient to generate many jobs.

Vacancies are up to 479,000, up 49,000 on the previous three months. The wave of redundancies is also ebbing: in the last quarter of 2009 they ran to 168,000, down 36,000. But there was also a surprise jump of 23,500 in the claimant count between December last year and January, to reach 1.64 million.

The main difference between the "headline" unemployment figures and the claimant count is that not all the unemployed are eligible for benefits – notably 16 to 18-year-olds, and the claimant data is more up to date.

Many economists saw the unwelcome news as more a reflection of the bad weather last month than a sign of a permanent reversal of the gradual improvements seen in recent months. Malcom Barr, an economist at JP Morgan, added: "While recent labour market reports have suggested stabilisation at least, this set of data were a reminder that in absolute terms the situation remains very weak."

Critics say that at least some of the explanation for the lower than forecast rise in unemployment during the recession is that so many people have been prepared to take part time or temporary work rather than go on the dole; almost 1.5 million in all. The Office for National Statistics also reported that the total of those "underemployed" in the UK – working fewer hours than they would wish – is equivalent to a further 2.8 million people.

Youth and long-term unemployment continued their upward trend. Nearly 1 million young people are out of work – 198,000 16 to 17-year-olds and 725,000 18 to 24-year-olds. The official data show that there are 190,000 young Britons who have been without employment for more than a year.

There is also evidence that a growing number of young people are simply opting out of the jobs market – often describing themselves as "students" though they may not have a place at any educational institution, or because casual employment such as bar work has dried up. That accounts for an additional 234,000 people, that is over and above the rise in youth unemployment. Overall those in the "economically inactive" category – also including full-time parents and early retirees – stands at its highest since records began in 1971. Total long-term unemployment, in all age groups, is 663,000, against 387,000 before the recession; a quarter of a million people have not had a job in two years.

The gulf between public and private sector pay has widened, again to leave the biggest gap since figures were first recorded a decade ago. Average regular pay in the private sector was £416 per week in December, a rise of just 0.2 per cent on the previous year, as employers imposed pay freezes and lay-offs. The public sector (excluding nationalised banks) has been so far relatively unscathed by the downturn and saw earnings increases of 2.9 per cent, keeping up with inflation, and leaving the gap between public and private pay probably at its highest in a decades.

Public sector workers have also become relatively better provided for in terms of pensions and usually enjoy greater job security than their private sector counterparts.