Unemployment in the 1980s and 1990s

by Paul Convery, Director, Unemployment Unit
(February 1997)

The 1980s and 1990s were the decades when mass unemployment become a political and economic reality for millions of people. It has been presented as an unfortunate but unavoidable feature of the new global economic order and, over the spans of two savage recessions, described as a ‘price worth paying’⁽¹⁾ to enable the British economy to emerge leaner and more competitive.

But, until the mid 1970s, unemployment was rarely higher than about 2.5% of the workforce. In the South East, even in 1974, the unemployment rate was just 1.4% whilst the regions of Britain which subsequently became blighted by mass layoffs, unemployment rates remained low. In Scotland, Wales and the North West, less than 4% of the workforce were unemployed.

But since the mid 1970s unemployment has consistently risen during periods of recession. However, during spells of subsequent growth, the jobless rate has never fully recovered to its pre-recession level. As figure 1 shows, each post-recession trough has remained higher with the number of claimants at ½ million in 1975, 1 million in 1979, 1.6 million in 1990 and standing at 1.9 million by late 1996. Both of the major recessions of 1980-82 and 1990-92 saw unemployment rise to just over 3 million claimants. The first recession caused unemployment rates of 17% in Northern Ireland, 15% in the North of England, 13% in the West Midlands and 14% in Scotland and Wales.

The causes of unemployment

There is no single cause of unemployment and no single cure. If there was, debate would simply focus upon whether it was good or bad to move the one policy instrument that might resolve it. Unemployment is the result of at least 5 major factors most of which are within the grasp of political and economic intervention: poor international competitiveness, deliberate actions by Government, the effect of external shocks, the effects of technological change and the effects of growing inequality which underpins the tendency for fewer people doing more work.

The British economy has suffered from poor international competitiveness - a problem summarised nearly 20 years ago by the National Economic Development Office (NEDO): "The relatively slow growth and low level of real income in the UK economy compared with other industrial countries, the faster rate of UK price inflation, the relentless decline in our share of world exports . . . and a persistent succession of balance of payments crises have long been recognised to be fundamental problems in the UK economy."⁽²⁾ Whilst Britain’s malaise might now be thought of as a 1970s phenomena, competitiveness still remains low. UK competitiveness in manufacturing trade, in 1994 was 65% higher than in 1984. But France and Germany are both 70% higher whilst Japan is 90% higher than in 1984 - with most of that growth being since 1990. Britain’s overall balance of trade has remained in consistent deficit since 1985 with a particularly serious imbalance between goods and services: the deficit in goods has averaged £10bn per year since 1990 whilst the surplus in services only averages £4bn per year.

Structural problems are worsened by unexpected events or the effect of political interventions. For example, the re-unification of Germany following the events of 1989, placed huge stresses on the public expenditure and capital formation capacity of the former West German economy. The combination of Germany’s fiscal and monetary prudence and its central role driving the western European economy caused recession throughout the Continent.

Similarly, a world recession was precipitated in 1974 by the oil exporting countries of the OPEC who raised the price of oil by 400%. Although many commentators regard this event as having sparked the first significant hike in post-war unemployment in the UK, the employed workforce still grew by ½ million between 1973 and 1979 - when the jobless totals rose by ¾ million.

Despite the impact of these external events, the ‘shocks’ affecting the British economy in both cycles were less significant than the effects of political decisions which caused Britain to enter deep recession in both the 1980s and 1990s. For example, during the first recession, UK unemployment rose from 7% to 13% (between 1979 and 1983) yet the top 15 countries of the OECD experienced a rise from only 5% to 8% in the same period. The 1990s recession was similar with unemployment in the UK rising from 6% to 10% between 1990 and 1993 whilst the OECD unemployment rates rose from 6.5% to 8.5%.⁽³⁾

Something about both the British recessions was ‘home grown’: it was a combination of high interest rates and an overvalued currency:

In both recessions, an overvalued currency made British export goods excessively expensive and encouraged cheap imports quickly causing losses, bankruptcies and redundancies. Between 1979 and 1981, the output of manufacturing industry fell by 15% and it took another 6 years before output recovered to the 1979 level. Similarly, between 1990 and 1992, manufacturing output fell by 7% and did not recover to the 1990 level until the middle of 1995. Even service industries lost output for a full 2 years between 1980 and 1982 - a pattern repeated between 1990 and 1992 when service industry output declined by about 2%.

In 1983, the House of Commons Treasury and Civil Service Committee described Government policy between 1979 and 1981 as "by far the most excessive overvaluation which any major currency has experienced in recent monetary history... (and) was probably the most important single element in its effects on domestic inflation as well as on British trade, production and unemployment."⁽⁴⁾

This verdict on interest rate policy and exchange rates was repeated in the 1990s following the UK Government’s conscious decision to ‘shadow’ the Deutschmark and to subsequently peg the value of Sterling at an unrealistically high rate within the European Exchange Rate Mechanism (ERM). In September 1992, the financial markets traded heavily against Sterling’s overvaluation and the currency was ejected from the ERM when it became unsustainable. Ironically, this involuntary devaluation forced a complete reversal of policy and dramatically improved Britain’s export performance leading to growth in output, earning and, eventually, employment.

The effect on regions

Superficially, the 1980s and 1990s recessions had quite different effects. The first recession hit the North of Britain, Wales, Scotland and the Midlands leaving the South East, South West and East Anglia relatively unscathed. In 1984, the rate of unemployment in East Anglia was half that of Northern Ireland, the North of England and Scotland. By contrast, the second recession affected all regions with unemployment rates tending to converge more. According to the orthodox definition of unemployment from the Labour Force Survey, in 1993, unemployment in London was significantly worse whilst the South East and East Anglia had marginally higher rates than in 1984. As figure 2 shows, by the worst point of the 1990s recession (Spring 1993), UK unemployment was 1½ percentage points lower than it had been in 1984. London’s unemployment rate 13.2% compared with 10.4% nearly a decade earlier. However, the rate for the North of England fell by 5 percentage points (from 16.3% to 11.3%) whilst the rate in Scotland had fallen from 15.% in 1984 to 10.2% (the UK national average).

This is reflected in the data for employment which shows a particularly marked loss of jobs in London. However, some of the regions which appeared to have been spared the worst of the recession, according to the regional unemployment figures, experienced job losses which were equal to or worse than the UK average. The following table shows the decline in jobs between 1990 and 1993 (employees and self employed combined):

	Spring 1990	Spring 1993	change
			totals	percent
South East (excl London)	5,354,000	5,002,000	-352,000	-7%
Greater London	3,329,000	2,996,000	-333,000	-10%
East Anglia	1,017,000	956,000	-61,000	-6%
South West	2,191,000	2,085,000	-106,000	-5%
West Midlands	2,433,000	2,233,000	-200,000	-8%
East Midlands	1,878,000	1,831,000	-47,000	-3%
Yorkshire & Humberside	2,194,000	2,148,000	-46,000	-2%
North West	2,787,000	2,620,000	-167,000	-6%
North	1,258,000	1,244,000	-14,000	-1%
Wales	1,201,000	1,129,000	-72,000	-6%
Scotland	2,229,000	2,177,000	-52,000	-2%
Northern Ireland	588,000	575,000	-13,000	-2%
GB	25,871,000	24,421,000	-1,450,000	-6%
UK	26,459,000	24,996,000	-1,463,000	-6%

The effect on industries

The collapse of employment in both recessions did not affect all industries and regions equally. Between 1979 and 1983, there were 1,705,000 jobs lost in manufacturing industries whilst the service sector suffered a net loss of 247,000 jobs. Retail distribution shed 276,000 employees, hotels and catering 84,000 whilst 203,000 jobs were lost in the construction industry. Few sectors escaped unscathed, though banking, insurance, financial and business services gained 122,000 new employees.

By contrast, the 1990s recession saw fewer manufacturing jobs go. The conventional perception of this period was that unemployment was mainly hitting the service industries and occupational groups like managers and professionals. If the media were to be believed, the early 1990s was characterised by redundancy amongst the middle classes and white collar workers. In fact, more than two thirds of all net job losses were incurred in manufacture and in construction:

	total	total
	Spring	Spring	change:	change:
	1990	1993	totals	percent
Agriculture & fisheries	505,000	437,000	-68,000	-13%
Energy & water	465,000	370,000	-95,000	-20%
Manufacture	5,452,000	4,870,000	-582,000	-11%
Construction	2,131,000	1,721,000	-410,000	-19%
Hotels, distribution, catering	5,239,000	4,863,000	-376,000	-7%
Transport & communication	1,586,000	1,516,000	-70,000	-4%
Banking, finance & insurance	3,428,000	3,302,000	-126,000	-4%
Public administration, education & health	5,510,000	5,859,000	+349,000	+6%
Other services	1,463,000	1,400,000	-63,000	-4%
Not specified/other	91,000	83,000	-8,000	-9%
All	25,870,000	24,421,000	-1,449,000	-6%

Over the recession, the net loss of jobs amongst non-manual workers remained fairly unchanged. Between 1991 and 1993 (figures for 1990 not available) the number of employees and self employed in non manual occupations declined from 14,572,000 to 14,417,000 - a decline of just 1%. For manual workers, the equivalent totals were 10,744,000 and 10,024,000 - a loss of 7%. Over the same period, the number of managers and administrators increased by 175,000 as did professional occupations (up by 87,000). These trends have continued so that, by 1996, the number of manual workers stood at barely 10 million whilst the number of non-manuals has risen to just over 15m.

The new jobs

Even at times of rising unemployment and high levels of redundancies, new employment replaces lost jobs and many people being made redundant will enter new jobs quite rapidly. For example, during the worst period for job losses, between Spring 1992 and Spring 1993, there were over 1.2 million people made redundant. About 27% of these were back in work within 3 months and nearly half were re-employed within 6 months. The data for the period underlines this: although 1.2 million jobs were lost, the net decrease in overall employment was 243,000. Of these 166,000 people were added to the unemployment total (LFS definition) with the remainder becoming economically inactive.

However, as employment has recovered following both recessions, most jobs growth has been concentrated in part-time work and the bulk of new jobs have been taken by women. Although the employed labour force grew by nearly 2½ million between 1984 and 1986, male full-time work fell by 2% whilst male part-time work has grown 5 fold. The number of women working full-time has increased by 16% and the number working part-time has risen by 19%, as figure 3 and the table below show:

Seasonally adjusted	Spring	Spring	change	% of all net
(GB)	1984	1996		change in
				employment
All men full-time	13,066,000	12,856,000	-210,000	-9%
All Women Full Time	5,380,000	6,256,000	+876,000	36%
All Men Part Time	184,000	1,107,000	+923,000	38%
All Women Part Time	4,264,000	5,081,000	+817,000	34%
All in employment	22,894,000	25,300,000	+2,406,000	100%

What’s wrong with part-time employment or more women working? Firstly, unemployed people want full-time work - indeed the Jobseeker’s Allowance rules require them to accept work of up to 40 hours per week. So the majority of net additional jobs are unsatisfactory.

Secondly, wage rates are significantly lower for women employees and for part-timers. Data from the Labour Force Survey shows that median hourly earnings for women are only 74% of male median earnings. Hourly earnings for part-timers are even lower: at £4.00 per hour, median earnings are just 59% of the full-time equivalent. And for part-timers, hourly rates are actually going down. Between 1995 and 1996, median full-time earnings grew by 3.2% whilst part-time earnings fell by 4% for men and by 1% for women. So, by mid 1996, the average (mean) weekly wage for a part-time women employee was just £80.

Although the majority of part-timers choose to work fewer hours than full-timers, a significant minority do not. In 1984, about 420,000 people were doing a part-time job because they could not get a full-time one. By 1996, this had risen to 800,000 ‘involuntary’ part-time workers. This underemployment is the equivalent of 490,000 full-time jobs - the number required to satisfy their potential demand for full-time hours.

Who is hit by unemployment?

The main risks of unemployment fall disproportionately on those who are poorly qualified and unskilled, those who are young and inexperienced, older people in the final 10 to 15 years before statutory retirement age, workers with poor health or who have a disability and people from ethnic minorities. Lastly, long term unemployment itself becomes a barrier to employment as it erodes work-related skills, whilst repeated unsuccessful job-search and rejection can undermine self confidence and motivation.

As the total number of unemployed people increases so does the average length of time they spend out of work. Between 1979 and 1986 the average claimant unemployment spell rose from five months to eight months, falling to 7 months in 1990. For 90% of claimants (ie excluding the small number of very long term unemployed) the average duration rose again to 10 months in 1993, falling back to 9 months by 1996.

The number of long term unemployed (greater than 1 year) as measured by the Labour Force Survey rose sharply in the early 1980s, peaking in January 1986, falling until 1990 and then rising again:

Youth unemployment

Young people and older workers disproportionately face the worst unemployment. For young people, unemployment was worsened when the 1980s recession coincided with a sharp rise in the youth population. At the worst of the recession in 1984, one in 7 of the entire age group was unemployed; In Spring 1993, (the worst point in the 1990s) it was 1 in 8; by 1996, it had fallen to 1 in 10. Although the absolute number of unemployed 16 to 24 year olds is half a million lower than in 1984, the total population group is 1.75 million smaller too. So, as figure 4 shows, unemployment rates for this age group are only slightly lower than a decade earlier (15% compared with 19% in 1984).

For immediate school leavers (those aged 16 and 17) unemployment rates is as bad it 1996 as it was in the 1980s. Then, 13% of the entire age group was unemployed; by Spring 1993 it was nearly 9% and, alarmingly, unemployment for this age group has been rising so that, by Spring 1996, just over 10% (142,000) were jobless, despite the promise of a guaranteed place on Youth Training. This total stands 21,000 higher than Spring in the previous year - an increase of nearly a sixth at a time when general unemployment (based on the LFS) fell by about 5%. The highest figure for a Spring quarter since the 1980s this represents a percentage unemployment rate of 18.6% (almost 1 in 5 of all economically active 16 and 17 year olds). ⁽⁵⁾

The main reason for this growth is that there are simply more young people. The population in this age group grew by about 78,000 between Spring 1995 and 1996 - about a quarter of this growth has been amongst young people who have failed to find jobs. However, the bulk of the population growth (about two thirds) has ended up either in work or in training.

However, 85% of all these unemployed 16 and 17 year olds have no form of income despite the Government's "YT Guarantee". Young people were first denied an automatic right to Income Support in September 1988. In place of a benefit safety net, the Government promised a guaranteed YT place but made arrangements for selected groups to receive some income: either Income Support or the temporary Bridging Allowance. According to data for the 2nd quarter of 1996, only 21,500 young people received any state income. This represents just 15% of the total 142,000 young people who were unemployed.

Unemployment amongst older people

The decline in economic activity amongst older people (particularly men) has evident between the early 1980s and mid 1990s. Of men aged 50-64, in 1984, just over 77% were economically active - a percentage which has fallen consistently since then and stood at 72% by 1996. However, for women aged 50-59 the economically active proportion has risen from 59% to 63% over the same period.

Ethnicity

According to the LFS standard definition, 17% of Black people aged 16+ are unemployed compared with 7.8% for Whites. But the numbers of Black people who want work (disregarding the jobsearch and availability criteria in the orthodox definition - see below) shows that 30% of Black adults are unemployed. Over half (53%) of Bangladeshi and Pakistani women want work. In total nearly half a million Black people are unemployed. This is reflected in the numbers who are employed. Only about half of Black working-age adults (53%) are in employment compared with 73% of whites., with only 33% of Pakistanis and Bangladeshis in employment.

Amongst Black young people unemployment rates are even higher: 27% for men and 22% for women, according to the standard LFS definition. This reflects a process of inequality which starts once Black people leave school. A third of white youngsters not going into further education get jobs on leaving school, only 15% of a similar age group of Black young people get jobs.

Qualifications and previous occupations

The lowest rates of unemployment are recorded amongst those holding a degree or a higher level vocational qualification. Of the 3.66 million people who are economically active, only 143,000 (or 3.9%) were unemployed according to the Spring LFS. Of the population whose highest level of qualification is in nursing, just 1% are unemployed whilst, for those with a teaching qualification, only 2.8% are jobless. But for people who have only a Youth Training leavers certificate, the unemployment rate is 21% whilst those who have no qualifications at all, the unemployment rate is 13%. Inded, this latter group account for more than a quarter of the entire unemployed population.

Just as possession of higher level qualifications reduces the chances of unemployment, so to does occupational background. Whilst the most recent LFS unemployment rate for GB was 8.3%, amongst managers and administrators, just 4% were unemployed. For those classed as professional occupations and associate technical and professional, the respective unemployment rates were 2.4% and 4.3%. By contrast, unemployment rates amongst manual occupations ranged from 8.5% to 11.6%. Similarly when measuring unemployment against industry sectors, public administration, education and health has a jobless rate of 3.5%, the financial sector has 4.7% compared with 11.4% for construction workers.

However, amongst the long term unemployment the disparity between manual and non-manual occupations has begun to close - reflecting that long term unemployment itself erodes any comparative advantage that non-manual long term unemployed jobhunters may have. In 1991, just 11% of long term unemployed were from non-manual occupational backgrounds. But when long term unemployment peaked in 1993, nearly ¼ of all those unemployed for a year or more were non-manual - a proportion which has remained constant ever since. As non-manual workers comprise 60% of the employed workforce, this is still significantly disproportionate.

This is also reflected in the data for long term unemployment which shows that former workers in the manufacturing and construction sectors account for a high proportion of the long term jobless. In Spring 1984, manufacturing and construction accounted for 21% of all long term unemployed - a proportion which had fallen to just 14% by Spring 1990. However, by the next peak in Autumn 1993, former workers in these sectors constituted 37% of all long term unemployed and was still at 30% by Summer 1996 (these two sectors account for about 25% of the total employed labour force).

Recurrent unemployment

One startling feature of data from the Claimant Count reveals how many people have experienced recurrent spells of unemployment. Of the 800,000 people starting a claim for benefit during the 3 months to July 1996, 26% had not received an unemployment related benefit in the preceding 10 years. However, 32% had made a claim on either 1 or 2 previous occasions and 24% had made claims 5 or more previous times.

Inactivity and ‘non-employment’

Not everybody wants to work or has to work. But a significant feature of the labour market is growth of economic inactivity. Part is attributable to increased participation in education. Amongst 16 to 24 year olds, only 71% are economically active compared with 76% in 1984 despite a 1.7m decline in the population group. Similarly, many women withdraw from the labour market if they have children- only 48% of women with a child aged under 5 are in employment compared with 67% of all working age women.

Mainly because of childcare needs, the number of employed men continues to outstrip the numbers of women by 13.9 million to 11.3 million. Most of this gap is made up of the self employed where men exceed women by 3 to 1. However, amongst employees the gap is closing. In 1979, 59% of all employees were men; now the gap has narrowed to barely 1 million and men now only make up 52% of employees.

With male participation in the employed workforce declining, where are they going? Obviously, many are unemployed, but as significantly, there is a growing proportion who have become economically inactive. As figure 5 and the table below shows, the number of men who are of working age and economically inactive remained fairly steady during the 1980s but rose sharply after 1990. It increased by 706,000 between Spring 1990 and Spring 1996. There are now 2,689,000 men of working age who are economically inactive. Expressed as a percentage of all men of working age, this inactivity rate has risen from 11.1% to 14.9% between 1990 and 1996.

By contrast, female inactivity is about half a million higher than in 1984 and about 120,000 higher than Spring 1990. But as a proportion of the working age female population the inactivity rate has fallen from 33% in 1984 and has remained steady (at about 28%) since 1990.

So male inactivity seems to be disguising unemployment. And this is particularly evident looking at regional and subregional inactivity rates for men. As table below shows, male inactivity averages 15% for the UK, yet it varies from 24% on Merseyside to just 11% in the South East, excluding Greater London. This means that 1 in 4 men of working age in Merseyside are completely outside the ‘active’ labour market (neither employed nor unemployed according to the standard definitions).

What makes this picture even starker is to express the numbers and proportions for non-employment. In other words, those men of working age who are either unemployed or inactive. Then we see that Merseyside has 37% of all working age men not employed.

For the UK as a whole at Spring 1996, there were 18,579,000 men of working age. Of these 2,864,000 are inactive and 1,534,000 are unemployed according to the LFS conventions. This is a total of 4,398,000 and represents 24% of the whole male working age population. This is the rate of non-employment and is shown for regions/sub regions below and in figure 6.

Note: inactivity rate expresses those inactive as a percentage of all working age men; non-employed rate expresses the inactive and the unemployed as a percentage of all working age men. The difference between the two is less than the normally described unemployment rate' which expresses the number unemployed as a percentage of the economically active population only - not the whole population of working age.