David Blanchflower: Forget the Full Monty – unemployment isn't funny, Chancellor

Economic Outlook: George Osborne's comment that the UK had "run out of money" is completely and utterly untrue

I recall watching the film The Full Monty with some American friends who thought it was hilarious, but I just found it deeply sad. Unemployment had driven a bunch of men during the 1980s recession in Sheffield to such a low point that the only hope they had left was to strip in public. The bottom line was that there simply were no jobs available, so they did anything they could to survive.

There is little evidence to support the contention that the unemployed, then or now, are a bunch of lazy bastards. Unemployment in fact tends to be involuntary rather than voluntary, lowering the well-being of both the individual and the society at large.

Thatcher's 1980s recession took its heaviest toll on middle-aged male manual workers who were members of trade unions and lived in the north: many never worked again. The unemployment rate was 5.3 per cent in July 1979, rising to a high of 11.9 per cent in March-May 1984, with much higher rates in the North. It didn't return to its starting level until June 2000, 21 years later, under a Labour government.

The Tories squandered North Sea oil revenues paying for unemployment: the Norwegians used their oil revenues to set up a sovereign wealth fund larger than Saudi Arabia's worth over half a trillion dollars and around 1 per cent of global equity markets.

Chancellor George Osborne harmed UK economic prospects still further last week by his damaging and ill-considered comment that the UK had "run out of money" – which is completely and utterly untrue. Imagine the consequences if the CEO of a major corporation or even of a major bank said such a thing, whether it was true or not. Inevitably, the share price would tumble and he or she would be out of a job fast. Once again, Mr Osborne put narrow political gain ahead of the national interest, the consequence of which will be to hit confidence and slow a flatlining economy even further. Contrary to both Mr Osborne's and the Prime Minister's frequent assertions, the UK is also not comparable to either Greece or Portugal, who are stuck in monetary union.

The UK has its own central bank that can print money; the government has access to the capital markets and can borrow at negative real interest rates. So we have not come close to and will not run out of money in a year of Thursdays. The inference I draw from such comments is that Mr Osborne, just like most other Tory chancellors, could not care less about the unemployed.

A question worth addressing is why has unemployment in the UK in this Great Recession not reached such devastatingly high levels as occurred in the 1930s or even in 1980s? It has already hit depression levels of over 20 per cent in Greece and Spain, but in the UK the unemployment rate to this point has not reached double digits. Unemployment hit 10 per cent in the United States in 2009 despite the fact that they had a much smaller drop in output, 3.7 per cent from peak to trough compared with 7.4 per cent for the UK – all of which the US has now recovered compared with less than half in the UK. Unemployment is rising again over here, up by around 180,000 this year, whereas it is falling in the US. For the first time since the spring of 2008, the US now has the lower rate (8.3 per cent and 8.4 per cent respectively). It may just be too early to gloat as unemployment heads inexorably to the three million mark.

One explanation why the unemployment response to the shock in the UK has been less than I expected, is the increased flexibility of the workforce in the face of global pressures. Firms have been able to reduce hours rather than fire workers who are unable to resist because they are concerned about job security and worry that their employers could move production to China.

Unions have been weak and have been unable to resist nominal cuts in pay packets because of the fear of unemployment. There has, consequently, been a rapid growth in the number of people who would like to work more hours, and would like permanent jobs but are stuck in temporary ones. This has helped to prevent firm closures or mass lay-offs on anywhere near the scale that occurred in the 1980s.

Firms in the UK hoarded labour in expectation that the good times would return fairly quickly. But as they haven't, a shake-out of labour may be imminent. As austerity bites harder, watch out for plant closures as firms downsize and an increase in bankruptcies, not just in retailing. Meanwhile, hiring freezes in both the public and private sectors have hit the young especially hard. Today more than a million youngsters under the age of 25 are unemployed, a quarter of them for at least a year.

In part, this is because the size of the youth cohort is large and will decline quickly for a decade. Youth unemployment under the Labour government fell sharply, largely as a result of the now abolished Future Jobs Fund and the Educational Maintenance Allowance. These schemes met with widespread public support in part because they were financed by a bankers' bonus tax – and they worked. It's a distinct contrast to the public opprobrium the coalition has received for making youngsters work for nothing in supermarkets under threat that if they quit they will lose their benefits.

The coalition's Work Programme isn't popular and isn't working.

Worryingly, Mr Osborne appears not have the slightest clue what to do to turn the economy around. Instead of giving it the "full monty", his only strategy right now seems to be to cross his fingers and hope for the best. He had better be right for all our sakes.

David Blanchflower is professor of economics at Dartmouth College, New Hampshire, and a former member of the Bank of England's Monetary Policy Committee

Start your day with The Independent, sign up for daily news emails
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Arts and Entertainment
Life and Style
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all