Analysis: ‘Real’ unemployment is on a rising trend

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THE JOBS market data published yesterday show both employment and unemployment falling in Scotland.

Total employment fell by 27,000 (-1.1 per cent) in the quarter and by 7,000 (-0.3 per cent) over the year. Yet, unemployment fell by 19,000 in the quarter and 25,000 over the year.

The unemployment rate now sits at 7.6 per cent, or 204,000, from 8.2 per cent in the previous quarter.

The UK did better on employment with jobs increasing by 40,000 or 0.1 per cent and rising by 1.7 per cent over the year.

But the drop in unemployment in the UK was 82,000, which was relatively less than in Scotland and so the UK rate only fell to 7.8 per cent from 8.1 per cent.

However, the favourable Scottish unemployment performance is more apparent than real.

In the latest quarter there was a surge in the numbers inactive. That is, there was an appreciable exit from the labour market with the inactive numbers rising by 50,000 or 3.2 per cent.

In the UK, too, there was an increase in the inactive numbers by 134,000.

Inactive numbers have been on a rising trend since almost the start of the recession, increasing by 102,000.

This suggests that underlying unemployment is also rising as workers are discouraged by the lack of available jobs to cease looking for work and leave the labour market.

If the labour market was in equilibrium at the start of the recession then we can compute a “real” level and rate of unemployment by adding back in this “discouraged worker” effect.

On this basis, “real” unemployment in Scotland is on a rising trend and rose in the latest quarter to 294,000 or 10.7 per cent – not the 204,000 and 7.6 per cent official figures.

That is a more true measure of the state of the labour market in Scotland.

• Professor Brian Ashcroft, of the Fraser of Allander Institute at Strathcyde University, publishes the blog Scottish Economy Watch