Labour may be working now, but the rewards aren't available to all

The Labour market is in a very healthy state - almost too healthy. With a record number of Britons in work, the benefit claimant count at a 20-year low and enough vacancies to employ all those out of work, the economy is clearly powering ahead on all cylinders. On this analysis, the only problem is when interest rates will have to be raised to prevent an unsustainable boom.

The Labour market is in a very healthy state - almost too healthy. With a record number of Britons in work, the benefit claimant count at a 20-year low and enough vacancies to employ all those out of work, the economy is clearly powering ahead on all cylinders. On this analysis, the only problem is when interest rates will have to be raised to prevent an unsustainable boom.

However, according to new research published this week, the good news masks mounting evidence that joblessness is increasingly concentrated on selected individuals, households, social-economic groups and geographical areas. Not only that, but wage inequality is at the most extreme level ever statistically recorded.

In other words, this is not a traditional North-South divide; it is a borough-borough divide, an old-young divide, a male-female divide, a rich-poor divide, a City bonus-minimum wage divide and a qualified-uneducated divide.

A report by the Centre for Economic Performance at the London School of Economics identifies stark contrasts across the UK, with areas of near-full employment in some regions alongside areas of severe deprivation.

The analysis, carried out for the Centre for Market and Public Organisation, highlights:

* Council estates where jobless rates of 25 per cent are commonplace;

* Ethnic minorities, such as Pakistanis, who have an ILO (International Labour Organisation) employment rate of 18 per cent compared with 5.6 per cent for whites, according to September's Labour Force Survey;

* 28 per cent of men over 50 are economically inactive, compared with less than 7 per cent in 1975 and less than 8 per cent for young men between 34 and 35;

* Unemployment of 3 per cent for graduates, compared with 12 per cent for school-leavers.

This echoes recent reports highlighting regional discrepancies. Last week's authoritative "Regional Economic Prospects" report from Cambridge Econometrics said that unemployment was the only area where the North-South divide had actually narrowed. But it went on to assert that the sole reason for this was the simple fact that unemployment in the North fell because workers migrated to the South in search of jobs.

The Trades Union Congress added its own twist, saying that the dividing line was between the south of England excluding London and the rest of the UK. It said it was concerned that large numbers of people were defined as economically inactive who should be classed as unemployed.

It produced its own "want work" index - all jobless people who would like to work. This found a sharp regional divergence. The highest "want work" rate of 17 per cent was in the North-east, compared with an ILO rate of 9 per cent. London, which has an unemployment rate of 7 per cent, has a "real" rate twice as high.

Of course one can prove anything with statistics, and a casual reading of the monthly Labour Force survey shows wide variations between areas and not just between the north and the south. The January Labour Force Survey shows that London has the worst four boroughs in terms of claimant count - Haringey, Lewisham, Newham and Waltham Forest - while Ribble Valley in Lancashire has one of the lowest.

The North-South divide caused a headache for the Government last year, despite its undoubted achievement on being the first postwar administration to show a real commitment to reducing the inequalities of unemployment and to abolishing child poverty within 20 years.

Last week it moved to reclaim the initiative with a report that showing regional inequality was actually falling. Measured in terms of the number of unemployed per vacancy, the huge disparities between, say, Yorkshire and the South-east have shrunk over the last decade. Across the UK the ratio is lower now than at any time since 1975. More importantly, it found that even in areas of high unemployment, those who are jobless do not live more than a few miles from job opportunities. This is why the Government is expected to announce some finely-tuned incentives for people to move out of welfare and into work.

These could even include the provision of mobile phones and pagers to keep the unemployment in touch with job opportunities and grants to enable them to travel to work, if that is a potential barrier. In other words, rather than Norman Tebbit's famous exhortation to the unemployed to "get on their bike and look for work", Gordon Brown's is: "We'll buy you a bike to get to work."

Stephen Byers, the Trade and Industry Secretary, backed this up on Friday with the admission that there were "clear disparities" between the regions' economies. "As a Government elected to govern for all our people, this state of affairs cannot be ignored," he said.

This is entirely in line with the Government's thinking so far. As economists know, the labour market is a crucial indicator, for two unrelated reasons. A booming job market is one indication of growing wealth and falling poverty - something all governments aim for. It is also, however, a sign that employees' demand for new workers could push up wages, and therefore inflation, triggering rises in interest rates.

The name of the game, loosely speaking, is to ensure that the supply of workers is sufficient - in both quality and quantity - to prevent any overheating. As the authors of the LSE report, Richard Dickens, Paul Gregg and Jonathan Wadsworth, put it: "The Government is trying to reduce inflationary pressure by reducing the concentration of worklessness on certain individuals, groups and communities."

To date this has meant the New Deal schemes to get the long-term unemployed back into work and provide a gateway for school-leavers to earn qualifications and find work. It has also meant a national minimum wage to prevent exploitation at the lower end of the job market, and help for families with children through the Working Families' Tax Credit and, from April 2001, the Children's Tax Credit.

"The Labour Government has produced a stream of initiatives aimed at tackling many of the distributive problems, but the slow-moving ship of state takes a long time to absorb these changes," the CMPO report says. It urges the Government to carry out greater intervention to tackle the large inequalities of opportunity, especially for the over-50s, the persistently low paid and those who constantly move between worklessness and short-lived jobs. "Whether the measures currently in place will be sufficient to begin to ease the problem that 20 years of indifference or wilful neglect have engendered will only become apparent over the next few years," it concludes.

The Chancellor, who has set full employment as his goal, is clearly prepared to intervene. This month's Budget and next year's - the last before a probable general election - will reveal how far he is really prepared to intervene.