Published on:

Unemployment rose less then fell faster than expected

My column in last week’s Times was on the rise in
employment, reforms to welfare and the productivity puzzle in


Successful innovations are sometimes low-tech:
corrugated iron, for example, or the word “OK”. In this vein, as
Iain Duncan Smith will say in a speech today in South London, a
single piece of paper seems to be making quite a difference to
Britain’s unemployment problem. It’s called the “claimant
commitment” and it has been rolling out to job centres since
October last year; by the end of this month it will be

The claimant commitment is really a contract between an
unemployed person and his or her “work coach” at Jobcentre Plus,
though government lawyers refused to let it be called a “contract”.
It turns out that requiring people to sign a paper that commits
them to certain actions — such as producing a CV, or checking
regularly for jobs — has had an instant effect.

Some people walk out, not wanting to perjure themselves about
cash-in-hand jobs they already have. Others get serious about
looking for work: evidence suggests that the introduction of the
claimant commitment has doubled the number of job searches people

Work coaches also take their responsibilities more seriously
after signing the paper. And when they “sanction” a delinquent
client by withholding benefits, they can point to the commitment:
“You agreed to do these things and you haven’t.” Usually such
sanctions have to happen only once and the lesson is learnt. Mr
Duncan Smith’s hope is that unemployed people should think they
have a job like anybody else — the job being to find work — and an
employer like anybody else: the boss being the work coach.

It’s too soon to credit the claimant contract for much impact,
but Britain’s employment statistics grow ever more startling.
Considering the length and depth of the recession, the rise in
unemployment was smaller and the subsequent fall faster than almost
every expert expected. After years of economic pain, economic
inactivity and the number of workless households should be at
stubbornly high levels. In fact, they are at record low levels.
Total employment is at record high levels.

This is all the more surprising when seen in an international
context. Not only are most eurozone countries, outside Germany,
stuck with high unemployment, the United States, usually such a
fast generator of jobs, seems to be experiencing a disappointingly
jobless recovery, with labour-force participation at a level not
seen since Jimmy Carter was president. In the past year Britain’s
employment rate has grown faster than those of Germany, France,
Canada, Italy, the United States and the G7 as a whole. Some of the
American pioneers of “workfare” reforms that began in Wisconsin in
the 1990s are beginning to say that Britain is ahead of them.

Seen from a local angle, too, Britain’s employment picture is
surprising. The North East of England, where I live, depends
heavily on public sector employment, a shrinking category. Yet
unemployment in the North East, while still much higher than in the
South East, is falling. The region is a long way from booming, but
it has surprised everybody by not busting. The country as a whole
has added 1.7 million private sector jobs and lost 382,000 public
sector jobs since the election.

However, if employment has been more buoyant than economic
growth suggests then productivity must be stagnant or falling,
which in the long run is bad news for prosperity. There are plenty
of explanations floating around for this “productivity puzzle”,
among them that in the uncertain years of 2011-2013, the private
sector was reluctant to invest its growing cash pile in new
machinery. Another possibility, popular in the Treasury, is that
output is being systematically underestimated because so much of it
is now online.

My preferred explanation is that 2 per cent growth while the
public sector is shrinking is a heck of a lot faster than 2 per
cent growth while the public sector was growing, as it was in the
mid-2000s: some of that growth was actually increased public

I remember complaining to a Bank of England grandee in the
Noughties that the growth of the public sector in the North East
was starving the private sector of talent; employers were
complaining that people would not apply for jobs in private
companies, preferring to wait for better paid, better pensioned
ones within Leviathan. She said the Bank had the opposite problem —
unable to hire good people because they all wanted to work for
Goldman Sachs. (We were, of course, both right, in different

There does seem to be something peculiarly job-ful about our
current recovery and maybe it does reflect the welfare reforms. It
is getting harder to ignore the argument that this Government is a
great deal better than the last one at getting people off welfare
and into work. Mr Duncan Smith likes to point out that under
Blair-Brown, in times of boom, 1.4 million people spent most of the
last decade on out-of-work benefits. They cannot all have been
unable to find work.

The Labour Party is running out of ways to see the employment
glass as half empty. It can no longer claim that the work being
created is all part-time jobs: full-time employment is up 430,000
in a year. It can no longer emphasise long-term unemployment and
youth unemployment, which are both falling.

It can say that there’s a long way to go before Britain’s
unemployment rate is anything like as low as Germany’s, and it can
say that many people are on low wages. Better that, says IDS, than
out of the habit of work altogether; and most people do not stay
long on low wages, but progress relatively fast to better pay.
Universal Credit, while much delayed by computer snafus, is
starting to roll out and promises to help people over the benefits
chasm where the rewards for working slightly longer hours are
virtually nil.

Labour also points to the growth of food banks as evidence that
welfare reform is hitting poor families. But the OECD’s recent
“social indicators” survey found that the percentage of families
saying they cannot afford food is lower today in Britain than it
was in 2007 and is the lowest in all 24 countries of the OECD

No Labour government has ever left office with unemployment
lower than when it started, despite the name of the party. The
coalition, for all its faults, will almost certainly avoid this
ignominious fate.

By Matt Ridley | Tagged:  rational-optimist  the-times