16/10/2011 16:45 BST | Updated 14/12/2011 05:12 GMT

Should High Unemployment Dash our High Hopes?

Labour market statistics published this week did not paint a pretty picture for the UK's economic outlook. Unemployment increased to 8.1 percent in the three months to August. That is the highest rate since 1996. At the same time, the number of people claiming Job Seeker's Allowance in the UK has jumped to 5 percent. London-based think tank Centre for Cities has a Citytracker tool for looking at which cities have been the hardest hit and have fared the best.

Labour has unsurprisingly blamed the Government's austerity measures and cuts in public sector jobs for the weakness of this month's figures. The Government has pointed to the external factors--including increasing turmoil in the eurozone--for the current weakness in economic performance. In reality, there are elements of truth in both arguments.

We should consider UK's unemployment in a wider context. America's unemployment rate is 9.1 percent, and France's is 9.9 percent. President Obama has suggested more immediate and radical (expensive) plans for turning the US economy around, but we operate in a very different fiscal environment. Without reducing the budget deficit, the UK could face greater turbulence. While the public spending sector cuts have undoubtedly had a negative impact on the labour market, it has clearly had a positive impact on investor confidence and has helped keep borrowing costs low.

If the employment figures continue in their downward slump, Government will come under increasing pressure to make drastic changes. George Osborne is hoping that quantitative easing will be enough to turn the market in the right direction. If it is not, Government will be feeling more pressure to do something. But, what can Government and businesses do?

Rather than jumping to conclusions about how to increase employment, we should think about what is being proposed. Economists are calling for a wide range of changes to the Government's economic strategy; each with their own position about what will create more jobs. Some argue that cutting VAT back will put more money in businesses to create more jobs. Others suggest we print more money towards the same end. Another group argues that we should lift the cap in immigration, while some say it should be restricted. Nobody has the one clear answer to how to create jobs in this economy, because there is not one clear answer. Economic recovery will come through a series of strategies and investments and through Government and business working together towards a common end.

No matter what route the Government decides to take, the greatest opportunities for growth lie within our cities. In England, cities contain 62 percent of jobs over a mere 14 percent of the land, and cities are uniquely posed to help create more jobs. They share resources in a unique way that makes businesses more productive and innovative, creating more jobs. They also offer a variety of professions, which allows people to be better matched to their work. Additionally, cities create more opportunities for people and businesses to learn from one other, increasing skills and innovation. Our growing urban economies provide the best chance for increasing employment opportunities in the UK and are where policies for employment growth should be focused.

While the latest labour market report is concerning, we should not feel all doom and gloom about the economy. Unemployment may get worse before it gets better. However, the trajectory of the economy relies on how Government and businesses approach job creation. They should focus on how to support private sector employment growth in our cities, creating job opportunities and linking people to jobs. This basic starting point--targeting places with the most potential to help the most people--is how we can best work to turn the labour market around.