Leading article: Britain's cold comfort on unemployment

The jobless numbers might be peaking, but the economic pain continues

When you've been down for a sufficiently long time, anything different can look like up. And so it is with the UK jobs market. The latest unemployment figures show a slight fall in Jobseeker's Allowance claimants and a decline in the number of newly unemployed.

If this trend continues, unemployment will peak at less than the three million plus which many analysts were predicting earlier this year. And that will make this recession, severe though it has been, less destructive of employment than previous downturns.

These are certainly encouraging signs. And given the dearth of those in recent months, optimists can hardly be blamed for latching on to them. Yet we should be wary of assuming that this unexpected piece of decent news means that a rapid recovery is anything like guaranteed.

It is important to look behind the headline figures and understand why unemployment seems to be undershooting the trend of previous recessions. Some Government action might well have helped, but the primary reason seems to be that our labour market is more flexible than it was during previous slumps.

Private sector workers' pay has been largely frozen since this downturn hit, whereas in the past it continued to rise. Because employers have made savings on their wage bills they have been able to keep on staff who in the past they would have had been forced to shed.

But pay is not the whole story when it comes to labour flexibility. We also have many more casual workers nowadays. And they have had their hours cut substantially by employers. Others are working part-time, rather than signing on. This is the reason overall employment actually rose in yesterday's figures. Many people are still in the workforce but their income has fallen.

The benefits of all this should not be dismissed. It is certainly preferable for people to remain working, even if they are being paid less or doing fewer hours, rather than for them to join the ranks of the jobless. If people stay in touch with the jobs market and retain their skills their personal economic prospects are considerably improved over the longer term.

The point is that we should not be under any illusions about the level of pain that is still being felt throughout the economy. Nor should it be ignored that unemployment among 18-24 year olds has hit a record high. This threatens to leave a bitter legacy of demoralisation for many young school leavers.

The road back to the economic conditions we have grown used to will be a hard slog. Those hundreds of thousands of people who have lost their jobs in this recession need to be re- absorbed into the workforce in the coming years. And the speed of that reintegration will depend primarily on the strength of the recovery.

There are strong reasons for caution about how robust that recovery will be. The public sector, which has so far been spared redundancies, is likely to begin making lay-offs within the next two years. That will mean greater competition for any new private sector jobs that are created. And all those millions of workers who have seen their incomes fall are unlikely to give the economy a boost by spending more.

The threat of stubbornly high unemployment remains. If yesterday's figures were comforting, it was a rather cold kind of consolation.