Our Labour Market Paradox

The UK labour market is deeply dysfunctional. Today, the Telegraph reported that there are three major cities where around a third of the homes contain adults that have never had a job. That is not an unemployment rate. No, it is something much worse. It is an unemployable rate. It is a number that tells us that around a third of the homes in Liverpool, Glasgow, and Nottingham are incapable of ever holding down a job.


Even at the height of the great depression, households in the worst hit areas had a dim memory of paid employment. Times were hard, but the unemployed could imagine a path out of their misery. It was a job. It was 40 hours of labour in return for a weekly wage packet. Even 40 years ago, these cities had reasonably healthy employment rates. So this phenomenon of unemployability is something new. It is bang up-to-date and modern; it is very 21st-century.

Yet there is a paradox here - the UK has created a huge number of jobs over the last decade or so, yet it has little impact on the unemployable. True, things have turned a little nasty recently. The unemployment rate is currently running at around seven percent of the workforce or about 1.5 million workers. Between 2008 and 2010, UK economy lost about 850,000 jobs.

Nevertheless, between 1996 and 2010 the UK economy created 2.5 million jobs. So how is it that a third of the households in Liverpool, Glasgow and Nottingham missed out on this job creation bonanza? Who took up those new jobs? It was, of course, those hard-working and industrious migrants from Eastern Europe.

These numbers provoke a natural and understandable sense of moral indignation. It is easy to leap to the most obvious conclusion; that the unemployable masses are idlers who are unwilling to go out and start earning. It also seems obvious that the root cause of this idleness is the benefit system - in particular sickness benefit.  It is this charade between doctors and idlers that facilitates this shameless indolence.

There is a kernel of truth in this argument. However, it begs the deeper question - why does society maintain a benefit system that creates such a large unemployable underclass. It is all very well blaming the unemployed, but if society is handing out money for staying at home, then the rational thing might be to lie on the couch, reach for the TV remote, and watch the Jeremy Kyle Show.

Perhaps the answer lies in the skill set of the unemployable minority. With limited literacy and little understanding of the demands of earning a living, it is not hard to see why employers would prefer to look elsewhere for workers. Perhaps it is easier to pay off the unemployable with sickness benefits and hope that they remain placid.

Sure, the middle classes enjoy a good rant about high taxes and government waste, but very few would seriously support any effort to dismantle the UK benefits system.   No, it is better to pay up to ensure that the unemployable shut up, or at least keep the noise down to tolerable levels.

Unfortunately, our parlous fiscal position suggests that this national compromise cannot continue. We cannot simultaneously run a 10 percent of GDP fiscal deficit, engage in foreign wars, prop up ailing EU countries, pay pensions, bail out bankrupt banks, and offer free healthcare to everyone and at the same time keep a large proportion of the population on sickness benefit.