Is unemployment within the labour market primarily voluntary?

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The worldwide recession precipitated by the financial crisis in the United States has had disastrous consequences for the UK economy as well. This most recent episode of recession in the UK happens to be the worst it had faced in the period following the Second World War. Based on the GDP numbers for the years 2008 and 2009, one learns that “the economy contracted even more sharply than previously thought in the first quarter of 2009: 2.4 per cent compared to the preliminary estimate of a 1.9 per cent contraction.” (Lynch, 2009) The promising rise of industrial production in April 2010 did provide hope for an early recovery. But this hope was to prove a mirage as the trend reversed in subsequent months. Though the UK took a little while to catch up with the crisis in the United States, at the beginning of the second quarter of 2008, the region’s economy was in acute recession. It has been close to four years since the onset of recession and subsequent economic slowdown in the UK and the prospects for a turnaround in the region remains distant. The question of unemployment in the labour market, and whether or not it is ‘voluntary’ needs to be studied under these prevailing economic conditions. Also, a historical view of the role and operation of labour markets will lend clarity to the topic in question. This essay endeavours to do the same by way of analysing and synthesizing related scholarly resources on this subject.

A look at the current unemployment problems in the UK reveals how acute a social, political and economic problem it has now become. For example,

“Concerns have been raised for a “lost generation” in the North East after the region was highlighted as a blackspot for youth unemployment. New research reveals that almost a third of people claiming unemployment benefit in the region are aged between 18 and 24, making the North East the worst region for youth joblessness in England. The figures released by the GMB union, showed there were 18,765 claimants within the age bracket in the North East last month, 30.9% of the total. That figure rose to 35% in County Durham, the fifth worst local authority area in the UK for young claimants.” (Lawson, 2011, p.6)

Many politicians and social activists believe that increasing unemployment will lead to a ‘lost generation’ of such young people. This situation could lead to social fissures, with attendant increase in crime. Already, statistics from the North East is troubling: “six out of the nine areas in the region had more than the national average for young claimants. County Durham, Sunderland, Northumberland, Hartlepool, South Tyneside and Darlington were all above the national average of 28%” (Lawson, 2011, p.6) Further, for many youth in the region, there are no clearly defined career paths ahead. Such was not the case during the 1960’s and 1970s. Whether or not this unemployment situation is voluntarily sought or involuntarily imposed can be learnt from several surveys undertaken recently. What these surveys clearly indicate is the definite sense of ‘fear’ in the hearts and minds of the unemployed. To the extent that fear is seldom a voluntarily embraced choice, unemployment in present day Britain is imposed on eligible and willing workers. Participants of the survey were asked what they think will be the prospects for employment over the next year:

“The balance between positive and negative answers has averaged 25 since its inception in 1982-the higher the number, the more people expect unemployment to rise. The findings shows, fear of unemployment rose very strongly in mid-2008, just as the unemployment rate started to rise, but then fell back through early 2010 to a low of 30 in February. The balance was 35 in May, 40 in June and 54 in July. The last increase of 14 points is the second-largest in the series ever, behind an increase of 15 in January 1991, when unemployment was also 7.8 per cent and rising.” (Blanchflower, 2010, p.17)

The above passage clearly captures the extent to which the British workforce is mentally scarred by the turn of economic events in the last few years. In this context, talking of unemployment as a result of voluntary choices doesn’t hold credence. Even more disturbing is the statistical pattern of suicides over this time period. Historically there’s been a correlation between suicides and economic recession. And the most recent episode of recession bears out this relationship ever more strongly. During the August of 2009, when recession was firmly established, the jobless rate in Britain had risen by 220,000 in the preceding quarter – the highest unemployment figure in 15 years. By the end of 2009 2.4 million eligible workers are unemployed in Britain – close to 8 percent of the total workforce. (Elmhirst, 2009, p.26) This figure further escalated in the subsequent year. Beyond such negative consequences as lower productivity, more people claiming jobseekers’ allowance and a young generation that is relegated from the labour market, high unemployment is having a severe psychological effect as well. Studies have indicated that being unemployed can have as great an impact on the mind as getting divorced or losing a loved one. But the worst outcome is the increase in suicides. In July of 2009, the prestigious medical journal Lancet released a research report looking at suicide rates in several European nations. The study found that “for every 1 per cent increase in unemployment, the suicide rate for people younger than 65 increased by 0.8 per cent. Research from the Wellington School of Medicine in New Zealand spells it out: you are two to three times more likely to kill yourself if you’re not working.” (Elmhirst, 2009, p.26) Now, it would be stretching common logic to claim that such a psychologically traumatizing situation is the result of voluntary action on part of citizens.

“Successive periods of recession over the past century have been linked to surges in mental illness, and suicide in particular. During the Great Depression in the United States, suicide rates hit a 99-year high (of 17 per 100,000 people). In the UK they peaked at 13.5 per 100,000 in the early 1930s, when unemployment reached its highest level for a century. And the collapse of the east Asian bubble economy in the late 1990s led to a huge increase in suicide rates. In Japan in 1998, suicides increased by more than a third, soaring to more than 30,000 for the year and then nearly 35,000 in 2003 (a rate of 27 per 100,000, compared to six per 100,000 in the UK in the same period).” (Elmhirst, 2009, p.27)

While neighbouring countries in Europe were already into recovery, it was only during the heralding of year 2010 that the UK economy showed clear signs of recovery. Financial experts have declared that technically the UK economy has emerged from recession, but concerns still remain about the stability and strength of the pound against the dollar and the euro. Due to the internal economic turmoil, there is a strong possibility for deflation of currency during this period of recovery. So while the UK is technically out of recession for a while now, there are concerns in the short term including the following: “Even accounting for a dent to potential output from the recession, the output gap is probably already over 3% of GDP and is unlikely to be closed until 2015 or so, which is both disappointing and concerning. The worse than expected figure could signal a downgrade to official growth forecasts in November’s Pre-Budget Report, which would mean public borrowing rises beyond the record pounds 175 billion estimated.” (Darling, 2009, p.2)

In this scenario, even after a few quarters of recovery, the economy will be fragile and volatile. Further, the fiscal deficit in the UK is predicted to reach the 14% mark, which is nearly double the average deficit level in other major economies of the world. According to a report released by the Organisation for Economic Co-operation and Development (OECD) public finances have declined significantly since the beginning of the recession and this makes it imperative that the UK continues to develop a more robust economic policy framework for reducing the ratio of debt to output. Toward this end, the government should devise a fool-proof and comprehensive plan of action to make sure that debt levels decrease once recovery starts consolidating. Moreover, according to analyst Kelly Macnamara,

“UK unemployment, which currently stands at a 12-year high of more than 2.2m, will rise substantially and labour market conditions will remain unfavourable for a long period. While labour market flexibility remains relatively high in the United Kingdom, policies to help the unemployed remain employable should remain a priority. The OECD said the rate of unemployment is expected to grow to 9.7% in 2010, double that seen just five years before, although this is still lower than other countries. Spain is set to see the worst level of unemployment, at 19.6%, while the US level is predicted to rise to 10.1%.” (Macnamara, 2009, p.18)

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