Belfast Telegraph

Unemployment — counting the real cost of the recession

By Neil Gibson

The spotlight of much of the commentary on recession focuses on GDP growth rates and how many quarters they may be negative for.

Whilst this technically defines a recession it is the numbers of people losing their job, or failing to get one upon leaving education, that perhaps the true cost lies.

Obviously the two go hand in hand but the personal impact of a recession which may last not quarters but rather a generation or a lifetime is perhaps the issue that deserves greatest attention.

In Northern Ireland the claimant count has risen to a 10 year high in June 2009 of just over 49,000 people. The rate of increase has slowed to around 1,000 per month from a peak of 4,000 in February this year and the level remains below the 120,000 peak experienced in the late 1980’s.

This level is set to rise further as recruitment remains muted and further closures and rationalisations take affect and a new cohort of school, college and university leavers enter the labour market. Oxford Economics forecasts a rise close to 60,000 during the coming year and perhaps more worryingly this is expected to remain high during the decade ahead.

The people entering the register during the last 12 months are in many cases lower skilled and are seeking work in lower skilled occupations not expected to lead any post 2009 recovery. This worrying mis-match leaves the possibility of a generational legacy of the recession a very real one.

Even when sectors such as construction and the housing market pick-up, the scale of growth is unlikely to be similar to the level it was preceding the current downturn, and thus many people without retraining will struggle to find a route back into employment.

Even if there is a response in migrant flows, as expected by many, this is not entirely beneficial for local employment opportunities as it will reduce demand for population based services — such as housing and retailing.

The question in response to this swell in unemployment numbers is whether the Executive and government in general are doing all it can to solve the problem?

Many schemes are under way to tackle the problem including support for apprenticeships and providing additional training for young people leaving education during this most difficult of times.

However there is one sense in which policy in Northern Ireland is disconnected from the reality of the scale of unemployment and that is its cost.

At present benefit support payments are considered to be Annually Managed Expenditure (AME) and thus are paid by Westminster irrespective of the bill. In the longer term large benefit costs at a Westminster level allied to limited tax income may lead to public sector squeezes but this does not feed through directly to the local Executive.

In contrast to the Irish and British governments who are being pilloried for the level of borrowing they require to meet their commitments the Northern Ireland Executive has no such pressures.

In the future as the Executive pushes for greater fiscal autonomy it is very possible this will only be granted if some of the risks of weaker economic performance are carried locally — and meeting rising benefit costs may be a way of passing the risk.

Neil Gibson is director of Oxford Economics’ Regional Services Division, having joined Oxford Economics from Regional Forecasts, which he founded. Neil leads a team based in Oxford, London and Belfast.

Belfast Telegraph