UK Unemployment drops to 4.9%, recent data shows.

New data from the ONS shows that the UK unemployment rate has decreased from 5.0% to 4.9% in recent months.

The decrease in unemployment shows a general downwards trend of unemployment in the UK as the rate has been steadily decreasing from 5.1% as shown in the diagram below.

However, Reuters polled economists and they expected it to rise to 5.1% in the three months up to January.

The BBC also says that it was surprising for most economists, as they expected an increase.

These predictions were based on the reduction in government support schemes such as the Furlough scheme.

Due to the Furlough scheme ending this year, economists believed that unemployment would increase as fewer workers will be supported by the scheme.

This means that rather than being paid 80% of their wage, workers would have to be paid in full, thus increasing labour costs for firms.

As a result of the increased labour costs, the operating costs of firms consequently increases, this therefore leads to firms having to lay off more workers as they have to keep their costs under control.

So, laying off workers is the best way for firms to decrease costs as they no longer have to pay as many wages thus decreasing costs, businesses feel the benefits very quickly as firing workers does not take a long time.

But why has unemployment decreased rather than increased?

Economists say that the decreasing unemployment is attributed to the large number of men leaving the job market, says the ONS.

The data shows that economic activity in this group has increased by 0.2% in the three months of February 2021.

An increase in economic activity essentially decreased the overall size of the labour force, so when this occurs, ceteris paribus, the unemployment rate should also decrease as the proportion of individuals in work compared to the rest of the labour force has effectively been made larger.

The data does not state why it has been primarily men leaving the labour market, nor do we know the reason for why this has occurred, we could provide many reasons however, they would be pure speculation.

Despite the decrease in unemployment, analysts do claim that the unemployment rate will increase once again in the later parts of 2021.

As stated previously, this increase will be largely due to the cutting of the Furlough scheme which has protected workers under the pandemic by keeping them employed.

For this reason, the current unemployment figures are somewhat misleading as the proportion of the workforce who are on the scheme aren’t actually producing any goods or services, so, it can be argued that the real unemployment is much higher.

Consequently, when Furlough ends and firms have to lay off workers in efforts to reduce costs, the Office for Budget Responsibility says that the unemployment rate could rise as much as 6.5% by the end of the year.

Further, unemployment has also increased in specific areas of the economy, especially in sectors such as hospitality.

The total number of jobs lost by the pandemic has risen 813,000, with London hit the hardest region hit due to its booming tourism and hospitality industry.

The BBC also says that “during the pandemic more than half of the fall in the number of employees has been among the under-25s,” meaning the pandemic has likely increased youth unemployment within the UK, thus worsening the already high rates.

However, the unemployment rate is expected to fall next year due to the economy recovering, so, the likelihood is that the unemployment which has occurred in these industries such as hospitality is likely not long-lasting.

This is good news for the government especially, if individuals, especially young people, are out of work, they become less attractive for employers as their skillsets are degrading due to them not being actively improved.

Therefore, an economic recovery will prevent this problem from occurring as the hospitality and tourist industry will likely bounce back and begin to employ more individuals as travel restrictions are lifted in the coming year.


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Research compiled by Billy Ryan.


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