Looking at Figure 1, how would you describe the current UK unemployment level?1 Can you explain periods of higher unemployment, and also those of lower unemployment?

Figure 1: Plots of unemployment rates (standardised and claimant count) for a number of major economies

including the UK. Source: OECD Statistics.

     There are two plots for UK unemployment rate – one represents the standardised rate and the other the claimant count. The difference between these two is that the claimant count includes only people who are claiming unemployment benefits, while the standardised rate is the total number of people actively seeking employment. Throughout most of the period represented on the graph, the standardised rate is lower than the claimant count.

     The current unemployment level in the UK is approximately 8.5%, which is its highest level since the early 1990s. The claimant count is much lower and stands at around 5%. Even though these figures are high, UK unemployment is lower than the EU or US levels and UK’s claimant count is much lower than the value for Germany, which is considered as very stable during the current economic slowdown.

     In the past there were two large peaks in unemployment levels in the UK. The first one is a large, rapid increase in the 1980s. This was a result of restructuring of the British industry by the Thatcher government. Government policies were aimed at lowering inflation, even if it meant high unemployment rates. Interest rates and taxes were raised, spending cuts implemented and the economy fell into a recession. People who were hit most severely were those working in mining and manufacturing.

     The recession in the early 1990s was caused by the US savings and loan crisis. In 1993 unemployment level was 10.7%, but since then it began to decrease. Until 2008, when the current recession started, unemployment levels in the UK were quite low, due to a period of steady, stable growth and general prosperity.