Growth in unemployment slows

Crisis may show signs of abating but number of jobless still over two million

The worst of the rise in joblessness may be over and the prospect of unemployment reaching three million seems to have receded, according to official data released yesterday. Nonetheless the dole queues are still lengthening, and seem set to do so for some months, albeit at a slower pace than during the depths of the recession earlier this year.

The Office for National Statistics said that the number of unemployed rose again, by 88,000 to a total of 2.469 million in the three months to the end of August, representing some 7.9 per cent of the workforce, up from 7.3 per cent in the quarter to May this year. However, the rise is much smaller than those seen earlier this year. Unemployment is up by 677,000 on last year.

The claimant count, which only includes those eligible for jobseekers allowance, showed the smallest increase for 16 months – 20,800 to 1.63 million. The West Midlands is the region hardest hit by unemployment – at 10.4 per cent. Long-term unemployment is also at 15-year highs. Youth unemployment rose again, but stayed just below the one million mark, increasing from 937,000 to 946,000. One in five young people is now unemployed, rising to one in three of 16- and 17-year-olds.

The Trades Union Congress's (TUC) general secretary Brendan Barber said: "The jobs crisis has not gone away and the economy remains very fragile. The number of people unemployed for over six months is now well over one million. Of particular concern are the 381,000 young people who have been out of work for more than six months. These long periods of joblessness can wreck a career before it's barely begun and the Government is right to treat this as a national emergency."

The British Chambers of Commerce (BCC) chief economist David Kern added: "Although confidence is strengthening, businesses are still facing serious pressures, particularly small and medium-sized firms. Lending is still too weak, and many are struggling to retain their skills base.

"In spite of the welcome figures published today, many risks persist, and the key policy priority is to avoid a double-dip recession. The Monetary Policy Committee must persevere with, and extend, the quantitative easing programme."

There were encouraging nuggets in the data. The trend in redundancies seems to be falling, there were more vacancies in manufacturing and finance, and the number of short-term unemployed (up to six months) fell by 57,000. Indeed, on a "rolling" three-monthly average the headline unemployment total actually fell very slightly in the three months to August compared with the three months to July.

But there is also some evidence that the figures are being flattered in the sense that there has been a dramatic increase in the number of people prepared to take, often poorly paid, temporary or part-time work while they seek full-time and permanent jobs.

Almost a million are working part-time while seeking full-time positions, and 443,000 are temping. Further hundreds of thousands are self-declared "students" and self-employed, both of which have risen markedly and can disguise underemployment. This is confirmed by trends in working hours, still falling. Nonetheless, the evidence that people are showing a more flexible attitude will be welcomed by some. Experts believe that, especially for the young, staying in touch with the world of work and avoiding long-term unemployment can pay large dividends both for the unemployed and the nation as a whole.

However, there is an unmistakeable trend in this recession away from traditional, and especially male, jobs in manufacturing and construction towards more casual occupations, sometimes less well paid and requiring fewer skills and qualifications.

Public sector employment has held up relatively well recently – the private sector lost 889,000 jobs over the past year to the second quarter, while the state expanded by 289,000 additional jobs (some through the nationalised banks). That trend seems set to reverse violently as the public finances come under sustained pressure.

Workforce restraint: The big pay freeze

Despite some high-profile examples of worker militancy, and headlines about bankers' bonuses, the overwhelming fact is that the British workforce is exercising almost unprecedented voluntary pay restraint, which, for some firms, has lessened the need to cut jobs. Underlying annual average earnings growth was just 1.9 per cent in the three months to August, the lowest rate since the ONS series began in 2001.

Private sector pay, especially in industry, is under more pressure than in the public sector: more than four out five manufacturers are freezing pay, according to the EEF. Average annual pay settlements for the 2.6 million in this sector is down to 0.3 per cent.

With negative retail price inflation the real-terms pay of many workers is still stable. Economists worry, though, that, in the economy as a whole, low pay rises will depress spending, growth and employment.

The management consultants Hays reported yesterday that typical boardroom salaries saw no rise in the last financial year – pay plus bonuses dropped 10 per cent.