The remarkable transformation from high unemployment to a shortage of skilled labour was a direct consequence of a decade of continuous economic expansion and a degree of stability unknown for a generation or more. Now, however, the trend in the jobless total has been reversed.

By the opening months of 2008, the claimant count had fallen to 790,400 – its lowest level since 1975. In the recessions of the early 1980s and early 1990s, claimant unemployment had reached around three million, during the 1980s it averaged around 2.7 million, and even during the boom years of the late 1980s, it never fell below 1.5 million.

For the UK, the 75% fall in the claimant count from the last peak of 2.93 million in the first quarter of 1993 represented an impressive improvement in economic performance, by far the best in the EU.

The claimant count figure has since been moving upwards, at first gradually but in 2009 at the fastest rate since the early 1990s. By October 2008, the one million mark was again passed and in April 2009, the jobless count was back to 1.5 million.

There is an expectation that the total will continue to rise even once the recession technically ends but the peak is likely to fall well short of the three million recorded in the early 1990s.

Source: ONS

In recent years the Labour Force Survey (LFS) / International Labour Organisation (ILO) measure has become the preferred indicator of unemployment. The results are published for three-month periods, the latest of which is a month earlier than the claimant count.

The LFS figure has been consistently higher but the trend has been the same: in the three month period April to June 2009, unemployment on this measure was 2.435 million, or 7.8% of the economically active population.

Having been above three million for most of the 1980s, it dropped to a low of 1.398 million in September 2004 before turning. In the last 12 month period, the LFS jobless count has increased by 45%.

The reduction in unemployment, moreover, was evident for both women and men. Between January 1993 and September 2004, male unemployment fell by 1.2 million to 807,000 (LFS measure).

Over the same period, the number of female unemployed decreased by 438,000 to 576,000. The subsequent increase has affected the male labour force harder, rising by 84% to 1.492 million in June 2009 while the rise in the female jobless total to 942,000 was a jump of 64%.

Source: ONS

Further encouragement can be drawn from the fact that as the rate of joblessness across the economy has fallen, there has been a continuing decline in the number of long-term unemployed.

This implies that efforts in re-training and education have been successful in getting people into new areas of work. The number of people unemployed for more than two years has been reduced from over 700,000 in 1994 to 176,000 in mid 2007.

This figure represents a little more than 10% of the total number of unemployed, compared to around a quarter during the mid-1990s.

Source: ONS

The breakdown of ILO unemployment by age reveals that in Q2 2009, 16-17 year olds accounted for 8% of the unemployed, 18-24 year olds for almost a third (30%), people in the 25-49 age bracket for 47%, with those aged 50+ years making up the remaining 15%.

Sustained economic growth and job creation in recent years have helped bring down unemployment across most age groups. For 18-24 year olds, an additional factor has been the growing popularity of higher education as an alternative to entering the labour market: among this group the unemployment rate has fallen from 17.5% in 1993 to 10% at one stage.

This rate is now rising and, at 17%, is a cause for concern about the longer-term skill base of the economy. Amongst 16-17 year olds the rate is even higher, at 31.7%, a third of whom have never had a job since leaving school.

This has come after a prolonged period when the unemployment numbers showed a remarkable fall in both unemployment amongst the young and the long-term jobless (i.e. 12 months or more).

From 1.2 million, the number of long-term unemployed was under 300,000 in 2005 but had moved back up to 533,000 in mid 2009. This represents just over a fifth of all unemployment.

Source: ONS

A slowing of economic activity, typically reflected by a period of sub-trend GDP growth, usually results in an increase in unemployment as companies respond to weaker demand by seeking to control costs.

Indeed, a spell of weaker growth during the second half of 2001 and through 2002 was associated with an increase in ILO unemployment over this period.

The increase was very modest in scale, however, and several factors appear to have been at work minimising the effects. The strength of domestic demand, for instance, continued to sustain employment in the service sector, offsetting job losses in the manufacturing sector.

In particular, the Government’s decision to loosen the purse strings, especially in the areas of health and education, led to the creation of many new public sector jobs. Finally, there may have been a degree of labour hoarding by employers, although this is difficult to prove.

Far more serious was the response to the slowdown and recession in 2008 which has pushed unemployment levels back up to levels last seen in the mid 1990s. But even here, the consequences have so far been less severe than might have been expected given the scale of the fall in activity.

This time around, large sections of the labour force have shown great flexibility in a desire to protect jobs in the long-term. Pay cuts, four-day weeks, unpaid holidays, etc. have become a more common supply side response to the slowdown in demand. This saves employers costs of redundancy and then re-hiring and means companies are well placed when business picks up.