The misery index in the economy is likely to rise next year. Unemployment is almost certain to go up, although there is some dispute about how much it will increase by. However, it is unlikely that all the lost public sector jobs can be replaced in the private sector. Indeed, private sector bosses may be unwilling to hire displaced public sector workers whom they suspect of having led a cushy life. Women will be particularly affected as they are disproportionately employed in the public sector.
Inflation shows no signs of easing. There is pressure on commodity prices, particularly food, gas, oil and cotton. At some point the Bank of England will start to increase interest rates, although by how much and when remains a matter of argument. The CBI says 2.5% by year end: I think 1.75% is more likely.
Even so, one of the things that has helped many people through the recession is that mortgage interest repayments have, depending on the deal a person has, have been kept low. If they rose, real disposable income would be reduced even further. As it is, it will be hit by fact that wages are not generally keeping pace with inflation, by the rise in VAT and by the 1p per £ increase in national insurance contributions from April which is in effect a 1 per cent rise in income tax.
Not surprisingly, retailers are worried about consumer demand. Of course, an objective of current policy is to shift the economy from one driven by private consumption to one in which exports play a greater role.
Meanwhile, the Government is suffering a series of defeats at the hands of fiscal nimbyism. The unfortunate Michael Gove has had to retreat on school sports and free books for young children. In the latter case the sum involved is small, but one way in which retrenchment tends to happen is by cutting smaller programmes completely. Now the Government is under pressure on the forensic science service, the privatisation of which strikes me as not a good idea.
Campaigns may achieve victories on particular issues. An alliance of nimbys may well defeat the proposed HST from London to Birmingham, the start of a larger network. My local MP Chris White has come out against it, reflecting the views of his constituents. The opponents of the scheme say that the business and environmental case is flawed, but if that is so, how have countries such as China, France, Japan, Korea and Spain been able to make high speed trains viable whereas we just have a stretch of line in Kent?
What is clear is that there is choppy political water ahead in 2011 and it may not be possible to deflect the opprobium on to the Liberal Democrats.
Showing posts with label Unemployment. Show all posts
Showing posts with label Unemployment. Show all posts
Tuesday, 28 December 2010
Thursday, 21 October 2010
The economic context of the CSR
The consequences of the CSR, particularly in terms of employment, depend to quite a considerable extent on how far the private sector can generate new jobs to offset the nearly 500,000 to be lost in the public sector. Of course, it will not be necessary to provide that number as some of those leaving will retire.
That in turn will depend to some extent on the condition of the global economy and I will return to that later. Let's first consider the domestic situation.
The downturn resulting from the global financial crisis saw a 6 per cent drop in output as against 3 per cent in the early 1990s. However, fewer companies have become insolvent. Employment was down 1 to 2 per cent at peak compared with 5 per cent in earlier recessions. Jobs have increased by 300,000 in the last six months, although it is doubtful whether that rate can be sustained.
Nevertheless, given the amount of emphasis that has been replaced on the dependence of private companies, it is as well to remember that Britain is not a Soviet style economy. It is still a private sector led economy. After the 1990s recession the private sector created 2 million jobs.
One concern is that the type of labour found in the public sector is not necessarily the type of labour that the private sector requires. Hence, the natural rate of unemployment could go up.
There are some concerns about the global economy which could impact on the growth rate in the UK. The Chinese economy may not be growing as fast as it has been. There is a risk of 'currency wars' in which countries engage in competitive devaluations of their currencies. This in turn could lead to a resurgence of protectionism.
It is also evident that G-20 is working less well than it did at the onset of the crisis. There is not an adequate mechanism for generating properly coordinated policies at a global level. Even the central bankers who meet every two months do so to share information rather than to coordinate.
The future is therefore very uncertain and the unemployment risks of the CSR could be substantial.
That in turn will depend to some extent on the condition of the global economy and I will return to that later. Let's first consider the domestic situation.
The downturn resulting from the global financial crisis saw a 6 per cent drop in output as against 3 per cent in the early 1990s. However, fewer companies have become insolvent. Employment was down 1 to 2 per cent at peak compared with 5 per cent in earlier recessions. Jobs have increased by 300,000 in the last six months, although it is doubtful whether that rate can be sustained.
Nevertheless, given the amount of emphasis that has been replaced on the dependence of private companies, it is as well to remember that Britain is not a Soviet style economy. It is still a private sector led economy. After the 1990s recession the private sector created 2 million jobs.
One concern is that the type of labour found in the public sector is not necessarily the type of labour that the private sector requires. Hence, the natural rate of unemployment could go up.
There are some concerns about the global economy which could impact on the growth rate in the UK. The Chinese economy may not be growing as fast as it has been. There is a risk of 'currency wars' in which countries engage in competitive devaluations of their currencies. This in turn could lead to a resurgence of protectionism.
It is also evident that G-20 is working less well than it did at the onset of the crisis. There is not an adequate mechanism for generating properly coordinated policies at a global level. Even the central bankers who meet every two months do so to share information rather than to coordinate.
The future is therefore very uncertain and the unemployment risks of the CSR could be substantial.
Sunday, 30 August 2009
Are tax credits cost effective?
Theresa May, whom I have met, may be best known for her choice of shoes, but is actually one of the smarter members of Dave Cameron's team who tries to do some original thinking about important issues.
In a speech last week she made it clear that any government elected next year would struggle to prevent unemployment rising and that it was unlikely to return to pre-recession levels before 2016. She pointed out that unemployment had cost the British taxpayer £340bn in benefits since 1997.
The difficulties of dealing with the long-term unemployed have been emphasised in a series currently being screened on Channel 4 which looks at private contractors trying to get them back into work. But the jobs aren't there and most of them are ill equipped to deal with them because of the way in which long-term unemployment has affected their morale and ability to work, quite apart from any skill deficiencies.
The most interesting part of Ms May's speech was when she hinted that the Conservatives would re-examine tax credits for the less well off. Gordon Brown regarded this as one of his greatest achievements as chancellor, a redistribution by stealth in favour of working people with families.
Dave Cameron has already signalled that tax credits could be scrapped for middle income earners and Ms May said, 'Tax credits do not help people get better jobs; in fact they can create poverty traps that actually disincentivise people from working more hours or finding a better job.'
Certainly getting rid of them or reducing them substantially would save a lot of public money. However, one member of my family is a beneficiary. With two young children, tax credits have effectively covered the nursery fees for the younger child which means she is able to continue working (she earns more than her husband). It would be difficult for her to work more hours because of child care issues.
These issues are never straightforward, but they need to be debated.
In a speech last week she made it clear that any government elected next year would struggle to prevent unemployment rising and that it was unlikely to return to pre-recession levels before 2016. She pointed out that unemployment had cost the British taxpayer £340bn in benefits since 1997.
The difficulties of dealing with the long-term unemployed have been emphasised in a series currently being screened on Channel 4 which looks at private contractors trying to get them back into work. But the jobs aren't there and most of them are ill equipped to deal with them because of the way in which long-term unemployment has affected their morale and ability to work, quite apart from any skill deficiencies.
The most interesting part of Ms May's speech was when she hinted that the Conservatives would re-examine tax credits for the less well off. Gordon Brown regarded this as one of his greatest achievements as chancellor, a redistribution by stealth in favour of working people with families.
Dave Cameron has already signalled that tax credits could be scrapped for middle income earners and Ms May said, 'Tax credits do not help people get better jobs; in fact they can create poverty traps that actually disincentivise people from working more hours or finding a better job.'
Certainly getting rid of them or reducing them substantially would save a lot of public money. However, one member of my family is a beneficiary. With two young children, tax credits have effectively covered the nursery fees for the younger child which means she is able to continue working (she earns more than her husband). It would be difficult for her to work more hours because of child care issues.
These issues are never straightforward, but they need to be debated.
Tuesday, 27 January 2009
Who should get help?
Yesterday was a particularly grim one in terms of employment news with big job losses at steel maker Corus. But, given that government funds are constrained, who should get help? Steel unions have asked for the kind of aid that is given to supplement the incomes of those on short-term working in France, Germany and the Netherlands. The UK Government is unwilling to do this, but might give money for 'training'.
Steel workers were complaining yesterday that money is given to 'top hats' but not to 'hard hats'. However, if we learnt one thing from the experience of the 1930s recession in the United States, it is that one doesn't allow banks to collapse.
In fact there may be another bias in the way in which aid is given. Women are losing their jobs faster than men in the recession and women MPs are complaining that too much emphasis is being given on helping male-dominated industries such as finance and motor vehicles, whilst 'soft' industries such as retailing and catering are ignored.
When I used to work on industrial policy, I was struck how many books were written about motor vehicles and steel, but relatively few about food processing. But, of course, food processing is an industry that employs large number of women workers. All the talk about 'real jobs' and 'making things' often conceals an implicit gender bias.
Of course, recurrent major crises of the capitalist system are a reorganisation device out of which it emerges leaner and fitter and able to grow again. Not everyone's job can be saved or subsidised, but the flip side of that is that the pain of recession falls harder on some than on others.
Steel workers were complaining yesterday that money is given to 'top hats' but not to 'hard hats'. However, if we learnt one thing from the experience of the 1930s recession in the United States, it is that one doesn't allow banks to collapse.
In fact there may be another bias in the way in which aid is given. Women are losing their jobs faster than men in the recession and women MPs are complaining that too much emphasis is being given on helping male-dominated industries such as finance and motor vehicles, whilst 'soft' industries such as retailing and catering are ignored.
When I used to work on industrial policy, I was struck how many books were written about motor vehicles and steel, but relatively few about food processing. But, of course, food processing is an industry that employs large number of women workers. All the talk about 'real jobs' and 'making things' often conceals an implicit gender bias.
Of course, recurrent major crises of the capitalist system are a reorganisation device out of which it emerges leaner and fitter and able to grow again. Not everyone's job can be saved or subsidised, but the flip side of that is that the pain of recession falls harder on some than on others.
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