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
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

Recruitment Genius: Call Centre Debt Collector - Multiple Roles

£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Guru Careers: Financial Director / FD / Senior Finance Manager

Up to 70k DOE: Guru Careers: We are seeking an experienced Financial Director ...

Recruitment Genius: Junior / Apprentice Sales Executives - OTE £50,000

£11000 - £50000 per annum: Recruitment Genius: This financial company offer ma...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen