17/10/2012 09:25 BST | Updated 17/12/2012 05:12 GMT

Unemployment Falling Slowly But Moving in the Right Direction


So unemployment is falling again, at last. It's still too high - over 2.5 million - and it's only falling slowly - by 50,000 in the last three months - but it is moving in the right direction.

The direction of travelling is all important when you're dealing with unemployment, because it moves so slowly.

There are about 1 million more people unemployed in Britain than there should be, and it will take years - probably three or four years - to solve this. The problem is that it's nearly three years since the recession ended and, up until now (we hope), the UK has been moving in the wrong direction.

But why has it taken so long for unemployment to start falling? Over the last year, the economy has created half a million jobs, and yet it unemployment has fallen by just 50,000, all of that in the last three months. Let's put aside the question of how we can be creating so many jobs while the economy is tanking (economists are still united in their befuddlement on this), and look at why all of these new jobs haven't translated into bigger falls in unemployment.

Part of the problem is the types of jobs that are being created. For a start, most of them - some 350,000 - are part-time. Second, many of the jobs are also self-employed - not necessarily a bad thing, but often a sign of insecurity. Strip these effects out, and only 46,000 of the half a million new jobs created in the last year are what we call employee full-time jobs (that is, full-time jobs where someone else pays you).

This is all very well, but part-time and self-employed workers are not unemployed. We may not be creating enough of the right jobs, but they are jobs nonetheless, and much better than unemployment.

To explain this, we need to go to another source of the problem: a fall in inactivity. There are an awful lot of people (over 9 million) who aren't in work, but aren't looking for a job either - we call them inactive, and they are not included in the unemployment figures. Many of these people are parents, students or retirees who choose not to work for various reasons. But many of them - roughly 2.3 million - say that they want a job, even if they aren't looking for one. In other words, they aren't officially unemployed, but they might take a job if one comes up.

What's happened over the last year, then, is that many people (314,000 to be precise) have moved out of inactivity, and begun looking for work. Some of these people will have taken jobs, some will have become officially unemployed - and all of them will have put more pressure on the 2.5 million people who are already officially looking for work. Why should this have happened? Well, with the weak economy over the last few years, many households have seen their wages and incomes falling. Many people may have begun looking for work in response, to make ends meet.

Aside from these issues, there's one more big factor: there are more people of working age now than there were a year ago. Over the last two years, more than 700,000 extra people have fallen into the working age bracket (ie, aged from 16 to 64), due to demographic shifts. There are more people to look for work, and therefore more pressure on jobs and more unemployment. This has been a very important - and widely overlooked - reason for why unemployment has remained so high.

The issue, then, comes down to this: the recession has coincided with a big increase in the number of jobs the UK needs. Part of that is because there are more people, and part of it is because more people need to find work. If the economy keeps creating jobs as it has been doing, unemployment will fall back to a reasonable level, but it will take several years.