Fearing the Double-Dip

We learn today (17 March) that the jobless rate in the UK remains unchanged at 7.8%. Nevertheless nerves are fraying about the possibility of a ‘double-dip’ recession, with large public sector job losses in prospect and figures also showing an increase in long-term unemployment.

The dreaded ‘W’ shape looms large on both sides of the Atlantic. Politicians here are anxiously eyeing the situation in the US where the pain of a ‘human recession’ has been felt sooner and more sharply.

US employers reacted to the recession by shedding workers rather than ‘hoarding’ them as in the UK, through wage freezes and shorter working hours. Heavier job losses are in part behind the doubling in long-term unemployment in the US over the past year, with an astonishing 4 in 10 unemployed workers out of work for six months or more.

The Government has now become part of the jobs problem in the US. States have reacted to large deficits by introducing deep spending cuts. New Jersey for example has seen widespread job losses among teachers and other state workers, with parents up in arms about the impact on their children’s education. A large number of February’s job losses were in government, with local government shedding 31,000 jobs (24,100 of those in education).

The Centre for American Progress has warned of the impact this is having on consumer spending, arguing that these actions are exacerbating the downturn rather than reinforcing the move towards recovering.

So what does this mean for the UK? Here there have been modest increases in public sector employment since the recession began. But this is set to change as the task of tackling the deficit begins in earnest, with a third of public sector employers planning job cuts in the first quarter of this year alone.

Long-term unemployment is creeping up here too. Despite extra government investment Jobcentre Plus and other employment programmes, the rate of those out of work for 12 months or more has reached its highest point since 1997.

Leaders on both sides of the pond will have a tough balancing act to negotiate in the coming months and years between tackling the deficit and spurring jobs growth. But politicians can take one lesson from the US. President Obama has, rightly or wrongly, been perceived as focusing on healthcare when large numbers of US citizens feel they are being left behind by a struggling economy. In terms of electoral strategy then, one message is clear: jobs should be the number one priority in this election. Uncertain times leave space for little else.

Clare McNeil, research fellow, ippr