Andrew Lilico

Jobs miracle or low-pay disaster? Andrew Lilico and David Blanchflower debate

Dear David,

From Q2 1979 to Q1 1981, quarterly real GDP fell in the UK by 5.5%. Unemployment rose rapidly, from 1.4m in Q2 1979 to 2.4m by the end of the recession, then continued rising through to its peak of 3.3m in 1984 – 12% of the workforce. Unemployment stayed above 3m for 51 straight months. This is the pattern economists expect in a serious recession. Unemployment rises, then stays persistently high, falling back only well into the recovery.

It has also been the experience of much of the developed world since the Great Recession of 2008/09. So, for example, whereas US unemployment was below 5% in 2007, it rose to about 10% in 2010, falling back only gradually over several years thereafter. Similarly, in Spain unemployment rose from 8.4% in 2007 to 27% in 2013.

The UK’s experience with unemployment during the Great Recession has, however, been very different – indeed, almost unique, internationally. Despite our contraction in GDP being worse (at least initially) than that in either the US or Spain, unemployment here rose much less — from around 5% in 2008 to 8% in 2009, where it stayed steady until 2012 before falling back to 5% again now. Whereas in past severe recessions, UK unemployment rose rapidly and stubbornly refused to fall, this time it rose only modestly and then fell back as soon as steady growth returned.

This was not expected by economists — neither by you nor me. Would you not agree that one might reasonably characterise this as a “jobs miracle”?

Regards,

Andrew Lilico

Dear Andrew,

You are right that the rise in the unemployment rate in the UK in the Great Recession was less than everyone expected, including me. This time around, unemployment rose to a peak of 8.5% in 2011, which was less than in the United States where it reached 10% in 2009.

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