Good news on jobs conceals a painful truth

The unemployment puzzle: The headline figures continue to be excellent but other statistics tell a different story. While ministers say a job is the best welfare, many people have found the search fruitless and given up

The number of people claiming unemployment benefit fell last month to its lowest level for more than five years. The drop of 35,600 was the biggest for nearly two years, signalling that the economy's faster growth rate is creating more jobs.

The recovery is also feeding through to people's pockets. Growth in average earnings rose to 4 per cent in July and August, the highest wages growth since mid-1994.

If unemployment continues falling at its current pace, the Conservatives will go to the polls with the headline jobless total below 2 million for the first time since early 1991. Angela Knight, Economic Secretary to the Treasury, said: "Competitive Britain is leading the way for job creation in Europe."

The British unemployment rate is one of the lowest in Europe and has been falling for nearly four years. Some forecasters think it will fall below 1.5 million later next year, which would be the lowest since 1980.

This performance is considered by the Tories to be one of the jewels in their economic crown and the reward for the deregulation of the UK labour market.

Critics challenge this triumphalism by pointing to several flaws in the British jobs record. One is simply that the headline count, the number of people claiming unemployment benefit, is flawed by the exclusion of many people who are ineligible for it. Unemployment on the international definition - those actively seeking and available to work - is higher, and fell less than the headline total in the first half of this year.

Even on the broader definition, though, unemployment had fallen to 2.3 million by the spring from a late-1992 peak of just under 3 million. Charge number two from the critics is that many people are so discouraged by the futile hunt for jobs that they have stopped looking. The evidence for this depends on which figures are used. On some counts employment has risen since 1992 by less than unemployment has fallen.

Yet the most comprehensive measure paints a reasonably bright picture of job creation during the past four years. And the notion that most of the increase of around 700,000 has been in part-time jobs for women is not completely borne out by the evidence. The extra employment has been divided about half and half between men and women. A third of the new jobs have been full time, two thirds part time.

The charge that does stick is that there is growing inequality in pay. Average earnings in the economy have risen steadily at all levels of income, and by more than inflation. But according to figures published recently by the OECD, there has been a bigger increase in earnings inequality in Britain since the early 1980s than in any other industrial country apart from the US. This is partly due to the increase in the number of no-earner households, in the poorest 10th of the population.

Despite the gentle criticism of this social divisiveness from the OECD, the Government is sticking to its free-market guns. As William Waldegrave, Chief Secretary to the Treasury, put it in a recent speech: "A job is the best welfare."

Alarm in the City, page 22