Long Term Unemployment

The latest tally of people out of work is an astonishing 2.57 million people which was announced for the period of June to August by the office of national statistics. Britain has experienced high levels of unemployment in the past, however this time around unemployment seems to be for the long haul.

Although the statistics show a clear view of the position that the labour market is currently in and its effect on the economy, it is not always clear why the situation occurs and its direct relationship to the population who are without jobs. 

It initially originated from the companies who employ us in the first place. When a company starts to suffer from high costs of production they look to reduce cost, and one way in doing so is to cut back on the amount of wages they have to pay. Another way is to increase the prices of their goods or services, however this way would limit their competitiveness in the market. The unfortunate outcome was that they chose to reduce the cost of wages by reducing their work force. 

This seems to explain how unemployment rises, but what it does not explain is how unemployment became long term.

Long term unemployment is what an economist dreads. Technically long term unemployment is when an individual has been out of work from 12 months or more. The two main reasons why unemployment in Britain became long term are due to changes in skill sets and changes to the setting of wages. 

Firstly when the skills needed for work change, individuals outside of work find it harder to get jobs due to lacking these specific skills. Employers avoid employing individuals without the skill sets as it costs time and money to train that person up, so would rather hold onto the current employees. 

Secondly employers are likely to increase the wages of their current workers to increase the effort they put in. This creates a barrier for the unemployed population to enter back into employment, because now employers can employ less people to achieve the same productivity. This eliminates the need for retraining costs. 

So the longer an individual spends out of employment the more likely they will have the insufficient skill sets to keep up with the changing technologies within the work place, furthermore the added effect of rising wages for current workers causes the difficulty of getting the unemployed who might even be willing to work for less into work. This economically inefficient labour market then leads to a number of other issues with the economy.  

by Stuart Hunter

Vane Recruitment