UK recession of 2009 compared to 1991 and 1981
As this graph shows, the current recession has seen the largest fall in GDP - a fall of 6% in the past 6 quarters.
Also, in the other recessions, the economy recovered quite quickly. This speed of recovery is not predicted in 2010.
Unemployment in Recessions of 1981, 1991 and 2009
This shows that despite a rapid fall in GDP in 2009, the rise in unemployment has been relatively modest. Given previous recessions, we could have expected a higher unemployment rate.
Why is unemployment not higher?
I think there are a few possible explanations:
- Official statistics underestimate true level of unemployment. Government changes have made it more difficult to claim benefits. Therefore, official unemployment is underestimating the true level of full time employment. Another way of considering unemployment is the employment rate. For example, currently 72.5% of the working age population is in active employment. ONS It would be interesting to find the statistic for employment rates in 1991 and 1981.
- This time, the recession has hit the financial services sector more than previous recessions Financial services could be relatively less labour intensive than manufacturing .
- Firms have sought to avoid unemployment by cutting back on hours or strict pay deals.
- An increase in young people going to higher education to avoid a very difficult labour market. Or an increase in older workers taking early retirement
- Labour Market protection. Unemployment in the US has risen more quickly than in Europe. Many suggest this is because labour markets in US are more flexible. In other words it is easier to hire and fire workers. This makes US unemployment more volatile. European unemployment rates rise slower in a recession, but, also fall more slowly during recovery. However, I am uncertain the extent of labour market protection for UK workers.