Fall in official unemployment rate masks rise in the 'hidden jobless'

Figures show 8 million 'economically inactive' people as job market shrinks

Fresh hopes that the worst is over for Britain's battered economy were raised yesterday after forecasters were confounded by the first fall in unemployment for 18 months.

But the figures showed that the country still has a growing army of eight million "economically inactive" people, with the size of the labour market declining to 28.92 million. The rate of employment is now at its lowest level since the winter of 1996-97.

Official figures showed that the headline jobless rate for the three months to November fell 7,000 to 2.46 million, the first fall since the quarter ending May 2008. The number of 16- to 24-year-olds out of work fell from 943,000 to 927,000.

However increasing numbers of people are being forced into part-time work – a record high of 7.71 million, up 99,000. Just over a million employees and self-employed people were working part-time because they were unable to find full-time jobs, another record figure.

That bodes ill for consumer spending – an important driver for the recovery – because part-time workers are typically paid poorly. Another worrying figure was issued by the left-leaning Institute for Public Policy Research. It warned that half of all black people aged 18 to 24 were jobless compared with 20 per cent among white people of the same age.

Economists remain divided on whether the unemployment rate has peaked or will rise again over the next few months. However, they said that despite some disturbing trends, the figures still show that the labour market has proved remarkably resilient compared with previous recessions and to competitors such as the US.

While Britain's economy has contracted by 6 per cent during the worst recession since the Second World War, the rate of unemployment has yet to top 8 per cent. That compares to the US where the economy contracted by 3.9 per cent but the rate of unemployment topped 10 per cent. Following the recession of the early 1980s the jobless total rose by just over two million; in the early 1990s recession it rose by 1.4 million. If it really has peaked, this time it will have risen by less than 850,000.

Economists believe that the likely explanation is an increased willingness among workers to accept lower pay or to work part-time to preserve their jobs. The theory was born out by government data on wages. Total pay including bonuses rose by just 0.7 per cent on a year earlier while regular pay (excluding bonuses) increased by 1.1 per cent.

A number of companies have explored ways of keeping staff through the downturn by offering reductions in hours and pay as alternatives to redundancy – some employees have been given the option of taking unpaid sabbaticals if they wish to pursue education or other interests.

This has allowed firms to reduce payrolls during the downturn while keeping hold of skilled employees.

David Page, economist at Investec, said the data added further weight to the view that the surprise figures showing Britain remained in recession in the third quarter were "wrong".

However, he pointed out that productivity in the US was much higher than in the UK. "It means that as the US comes out of recession, companies are likely to hire more aggressively because they are getting all they can out of their staff. That is not the case in Britain where productivity has been falling and companies may not need to take on more staff for some time."

Ministers warned yesterday that unemployment would probably rise again over the coming months. The need to cut the country's budget deficit after the general election is also all but certain to lead to job losses in the public sector. Its continued expansion through the recession has eased the pressure on unemployment as private-sector firms have shed staff.

Business graduate: 'I feel ashamed and depressed'

Adelin Choy, 24, graduated from Nottingham University with a 2.1 in management studies before taking an MSc in management at London's Cass Business School. In the 18 months since that course finished, she has not had a full-time job.

"I had a really hard time as a lot of the companies I applied to were either rejecting me straight away, saying that they were not hiring, or said they'd contact me once they knew whether there are any positions available."

While she has been unemployed, Ms Choy has been living off credit cards, overdrafts and has also received financial support from her parents who live in Hong Kong. But the situation has been difficult for her family.

"My parents were really annoyed and frustrated. They spent so much money on my education and were upset by the fact that I couldn't get a job. I was constantly being pressurised by them not just to get a job but to get a job well suited to my qualifications. I felt ashamed and depressed after I'd put so much attention and effort into my studies." Ms Choy is now is considering leaving Britain and moving to China.

Academy trainee: 'Not earning money really brought me down'

Marcus Campbell, 19, from Fulham, west London, has been looking for a job since the end of 2008, after studying communications and customer services. He hasn't "signed on", instead turning to a charity for training help.

"I've been to the Jobcentre loads, but so many jobs have turned me down because I don't have the skills they are looking for. Not earning money has really brought me down and affected my relationships; when I've been feeling low, I've had arguments about stupid things. My lifestyle has changed; I've seen people less because I've not been able to afford to travel to see friends. Luckily I've now got a training place at the National Skills Academy and hope it will lead to a teaching job."

Redundant glazier: 'I couldn't get any construction work'

Glen Martin, 22, from Catford, south London, has been unemployed for two months after being made redundant and has struggled to find work.

"I was lucky when I finished school at 16. I went straight into working as a glazier with a firm.

It was really good for five or six years but I was made redundant in November. I was well gutted. I had to look for jobs but there weren't many about, what with the recession. I couldn't find anything. I thought I might try the construction industry. I wanted to go into construction but I couldn't get any jobs because I didn't have the card I needed which allowed me to go on site and said I knew about health and safety.

It's been a very difficult three months and I couldn't find anything to do. Luckily, my mate went on this course [run by the Prince's Trust] which gives you the card you need which allows you to work on the construction sites. It's only a two-week course and I'm on it now and they tell me it shouldn't take long to find a job afterwards."