Tag: unemployment

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That shrinking feeling

In the third quarter of 2011, the UK economy grew by 0.6% – nothing to shout about, but at least it was positive. Since then there has been growing concern about the state of the recovery with many commentators widely expecting to see much lower growth in the final quarter of last year.

Today, those commentators were proved right, as official figures released show the UK economy shrank by 0.2%. It doesn’t mean we’re in a recession (that requires 2 successive quarters of negative growth), but if growth doesn’t pick up in quarter 1 of 2012, then ‘Double-Dip Recession’ headlines will fill the front page.

Despite the disappointment that the UK economy has shrunk, the figures were not wholly unexpected, especially given the data released a week or so before, which showed unemployment had risen. Furthermore, with the crisis in the eurozone and many other countries still struggling to mount an economic recovery, there have been few external stimuli for the UK.

Although the fall in growth was larger than expected (0.2% as opposed to the predicted 0.1%), the UK economy is expected to grow throughout 2012. However, the IMF has reduced its forecast annual growth rate from 1.6% to 0.6%. The economic climate for 2012 remains uncertain and much will depend on developments in the eurozone. Further problems could spell trouble, but if there is an improvement in the fortunes of Europe, confidence could return to the markets and economic recovery could be faster. Ian McCafferty, the Chief Economic Adviser of the CBI said:

While the acute fears seen at the end of last year over global demand may be subsiding, 2012 will prove to be a difficult year for UK manufacturing, as the crisis in the eurozone – our biggest export market – has yet to reach any definitive resolution.

Whether or not we do move into a double-dip recession is uncertain and following this latest data, many commentators say it is a 50:50 change; and even then it hinges on many factors. However, even if quarter 1 of 2012 sees negative growth and hence a return to recession for the UK, Chris Williamson from Markit said that ‘there are growing indications that any downturn is likely to be ‘mild and short-lived’. The following articles consider the state of the UK economy.

Unemployment to soar as UK heads back into recession The Telegraph, Philip Aldrick (25/1/12)
UK economy shrinks by 0.2% in last 3 months of 2011 BBC News (25/1/12)
UK GDP: what the economists say Guardian (25/1/12)
UK recession threat: can we dodge the double dip? Citywire, Chris Marshall (25/1/12)
Double-dip recession fears as UK economy shrinks 0.2 percent Independent, Peter Cripps (25/1/12)
PM says ‘no complacency’ on economy Financial Times, Norma Cohen and Elizabeth Rigby (25/1/12)
The UK economy is shrinking. Time to listen to gloom-mongers? Guardian, Phillip Inman (25/1/12)
UK economy shrinks in Q4, raising recession fears The Associated Press (25/1/12)
FTSE CLOSE: Stocks slide as 0.2% GDP fall sparks recession fears; banks among the biggest fallers This is Money (25/1/12)
Sorrell: ‘UK will avoid double-dip recession’ Sky News, Tom Rayner (25/1/12)
Recovery in rehab BBC News, Stephanie Flanders (25/1/12)

Questions

  1. How is a recession defined? What are the typical characteristics of a recession? (Think about the macroeconomic objectives).
  2. Which particular sectors of the UK economy were the most severely affected in Q4 of 2011?
  3. Examine the main causes of the UK’s decline in national output.
  4. Which of the causes identified in question 3 do you think is the key factor keeping UK national output from growing? Explain your answer.
  5. Why is there a growing presence of companies from emerging markets in the top 100?
  6. Why are many commentators suggesting that even if the UK goes into a recession, it is likely to be ‘mild and short-lived’?
  7. What has happened to stock markets following the release of this latest economic data?
  8. Evaluate the options open to the Coalition government in stimulating the UK economy. To what extent would your policy solution damage the Coalition’s aim of cutting the UK’s structural budget deficit?
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Unemployment at record high

Disagreements are hardly an uncommon occurrence during Prime Minister’s Questions and today the key issue up for debate was UK unemployment. Figures released show that in the 3 months to November 2011, UK unemployment rose to 2.685 million – an increase of 118,000. The ONS said that unemployment now stands at 8.4% – the highest figure in well over a decade.

However, the increase in unemployment is not as high as it was in the 3 months previous to that, which is possibly an indication that the labour market is slowly beginning to recover and the government’s labour market policies are starting to take effect. The government claimed that cuts in the public sector will be compensated by growth in private sector jobs, but the evidence from the ONS did little to back this up.

The labour market is crucial for the recovery of the UK. Jobs mean income and income means consumer spending. If the job market remains uncertain and more people enter unemployment, consumer spending is likely to remain weak for some time. Chris Williamson, the chief economist at Markit:

The increase in unemployment, plus job security worries and low pay growth for those in work, means consumer spending may remain very subdued this year, despite lower inflation alleviating the squeeze on real incomes that caused so much distress to households in 2011.

One area of specific criticism leveled at the Coalition was the extent of youth unemployment, which reached 22.3%. Ed Miliband said the government had cut ‘too far and too fast’ and that it will be remembered for standing aside and doing nothing ‘as thousands of people find themselves unemployed’. The figures are clearly concerning, but the Coalition maintains that policies designed to tackle the labour market are beginning to take effect and over the coming months, the economy will begin to see a decline in the unemployment rate. The following articles look at the unemployment crisis.

Articles
UK unemployment rises to 2.8m Guardian, Heather Stewart (18/1/12)
Leaders clash in commons over jobless rise BBC News (18/1/12)
UK jobless rate hits new 17-year high Financial Times, Brian Groom (18/1/12)
Unemployment rise: reaction The Telegraph, Louise Peacock (18/1/12)
Unemployment total rises by 19000 The Press Association (18/1/12)
Politicians give cautious welcome as quarterly unemployment falls by 1000 in Wales WalesOnline, Claire Miller (18/1/12)
Employment Minister: unemployment is too high The Telegraph (18/1/12)
Chris Grayling: ‘Unemployment figures are complex’ BBC News (18/1/12)

Data
Unemployment in graphics BBC News (18/1/12)
Data Tables: Labour Market Statistics Excel Spreadsheets ONS January 2012

Questions

  1. What type of unemployment is being referred to in the above articles?
  2. Explain the mechanism by which a recession will lead to higher unemployment.
  3. Using a diagram to help your explanation, analyse the impact of a fall in aggregate demand on the equilibrium unemployment rate and wage rate. What happens to unemployment if wages are sticky downwards?
  4. What can explain such different stories of unemployment between Scotland, England and Wales?
  5. What policies have the Coalition implemented to tackle the rising problem of unemployment? On what factors will their effectiveness depend?
  6. Why is the UK’s job market so important for the future economic recovery of the UK?
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Recession not inevitable

There has been much talk of a double-dip recession, with many suggesting that the UK economy is already in a recession. However, according to the British Chambers of Commerce (BCC), a recession is not inevitable. Although the businesses surveyed showed that the economy had significantly weakened, John Longworth the Director General of the BCC said that a ‘new recession is not a foregone conclusion’.

Even though many of the figures showed a continued weakening of the economy, the results are still not as bad as they were back in 2008. The concern is that if the weakness continues, as it is predicted to do in the first quarter of 2012, confidence will remain low and then the economy may stagnate and a recession becomes a more likely scenario. Action is needed to prevent this from happening, especially with the eurozone crisis still causing concern. As John Longworth said:

The UK does have the potential to recover and make its way in the world. We have the talent, the energy and the enterprise. All we need is an environment that puts business first.

At the beginning of December 2011, many analysts thought retail sales would remain low, as they had been throughout 2011. However, British consumers came through in the second half of December and retail sales were up by 4.1% compared with a year ago. According to the British Retail Consortium, this Christmas rush should not be seen as a fundamental change in the direction of the economy and will have done little to boost the overall annual sales of most retailers.

Recession ‘not foregone conclusion’ Guardian (10/1/12)
UK economy likely to shrink amid eurozone crisis, says BCC The Telegraph, Angela Monaghan (10/1/12)
UK recession is not yet inevitable, survey says BBC News (10/1/12)
UK risks recession and lengthy stagnation – BCC Reuters, David Milliken (10/1/12)
U.K recession fears build Wall Street Journal, Ilona Billington (10/1/12)
BoE stimulus expansion may not be enough for recovery, BCC says (quick ad before article appears) Business Week, Scott Hamilton (10/1/12)

Questions

  1. How is a recession defined?
  2. What data has the BCC used to come to the conclusion that a recession is not inevitable?
  3. What action is needed by the government to tackle ‘short term stagnation and a lack of business confidence’?
  4. What could explain the 4.1% increase in sales in December compared with the previous year? Why is this data not thought to represent a ‘fundamental change in the circumstances of UK consumers’?
  5. What is expected to happen to UK inflation and employment during the first quarter of 2012?
  6. Why does the eurozone crisis present a problem for confidence and British exporters?
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Divided we stand

Divided we stand is the title of a new report by the Organisation for Economic Co-operation and Development (OECD). Its sub-title is “Why inequality keeps rising”. The report shows how the gulf between rich and poor has widened in most countries, both developed and developing. As the introduction states:

In the three decades prior to the recent economic downturn, wage gaps widened and household income inequality increased in a large majority of OECD countries. This occurred even when countries were going through a period of sustained economic and employment growth.

The report analyses the major underlying forces behind these developments. Its conclusion is that inequality looks set to continue widening, especially with the worldwide economic slowdown and rise in unemployment. However, the report says that “there is nothing inevitable about growing inequalities. Globalisation and technological changes offer opportunities but also raise challenges that can be tackled with effective and well-targeted policies.”

So just what is the extent of inequality? How has it changed over time? And what can be done to reduce inequality? The webcast produced by the OECD to accompany the report looks at the problem, and the report and articles look at what can be done about it.

Webcast
Record inequality between rich and poor OECD (5/12/11)

Articles
Governments need will to fix growing inequality Times Colonist (Canada), Paul Willcocks (8/12/11)
Capitalism defies the laws of gravity Sydney Morning Herald, (7/12/11)
UK pay gap rises faster than any rich nation – OECD The Telegraph, (5/12/11)
The Income Inequality Boom: It’s Real and It’s Everywhere The Atlantic, Derek Thompson (6/12/11)
Income inequality growing faster in UK than any other rich country, says OECD Guardian, Randeep Ramesh (5/12/11)
OECD inequality report: how do different countries compare? Guardian datablog (5/12/11)
Inequality in Britain: faring badly in an unfair world Guardian (5/12/11)
OECD calls time on trickle-down theory Financial Times, Nicholas Timmins (5/12/11)
Wage inequality ‘getting worse’ in leading economies BBC News, Adam Fleming (5/12/11)

OECD Report and Documents
Governments must tackle record gap between rich and poor, says OECD OECD Press Release (5/12/11)
Divided we Stand: Why Inequality Keeps Rising – Introduction by Angel Gurría, OECD Secretary-General, at Press Conference OECD (5/12/11)
Divided we Stand: Why Inequality Keeps Rising – 4-Page Summary of Report (5/12/11)
An Overview of Growing Income Inequalities in OECD Countries: Main Findings OECD (5/12/11)

Questions

  1. Why may inequality be seen as a ‘bad thing’ for society as a whole and not just the poor?
  2. Does it matter for the poor if rich people’s incomes grow at a greater rate than those of the poor so long as the incomes of the poor do indeed grow?
  3. Explain what is meant by the Gini coefficient. What has happened to the Gini coefficient over the past few years across the world?
  4. Are there any common explanatory features in the economies of those countries where income inequality is growing rapidly? Similarly, are there any common explanatory features in the economies of those countries where income inequality is not growing, or growing only very slowly?
  5. What are the causes of rising inequality?
  6. Identify policies that can be adopted to tackle growing inequality.
  7. What problems arise from policies to reduce inequality by (a) reducing inequalities in disposable income; (b) providing more free services to all, such as healthcare and education? How might these problems be mitigated?