How can you have growing employment and a shrinking economy?

Underemployment: the UK’s response to economic weakness

Despite the UK economy being in recession in the first quarter of 2012, unemployment fell by 45,000 (and youth unemployment was down by 18,000). This is very welcome news. Throughout the last four years of recession, hesitant recovery and return to recession the UK’s labour market has performed remarkably well. The fact that 2.63 million people are unemployed is terrible news, but, if the pattern of previous recessions had held, that number could have been closer to 3.5 million. It’s bad, but it could have been a lot worse.

Companies and workers have found two alternatives to mass redundancies: cuts in real pay and increased part-time working.

Pay has failed to keep pace with prices for much of the last four years and the latest figures show regular earnings (excluding bonuses) increased by just 1.6 per cent over the last year, compared to consumer price inflation of 3.5 per cent.

Meanwhile, the 105,000 increase in employment in the latest quarter was more than fully accounted for by part-time workers, while the number in full-time employment fell by 13,000. Looking at the numbers differently, 90,000 of the 105,000 increase in employment in the last quarter was due to an increase in self-employment.

These are not new trends; they have been evident throughout the recession and recovery. The following table shows the change in employment over the last four years (i.e. comparing the first quarter of 2008, just before the recession, with the first quarter of 2012):


Change in employment (000s)

Total employment








Unpaid and on government programmes




Employment – full-time


Employment – part-time




Employees – full-time


Employees – part-time




Self-employed – full-time


Self-employed – part-time


In round numbers, over this period total employment in the UK has fallen by close to 300,000. But the number of full-time employees is down by 800,000, while the number of part-time employees and the number of part-time self-employed people are both up by about 250,000.

We know there are many reluctant part-time workers because the Office for National Statistics asks those who are working part-time if they would prefer to be working full-time and 1,418,000 are currently saying yes – the highest number since comparable records began in 1992 and an increase of 700,000 over the last four years. Unfortunately, the ONS does not ask the self-employed if they would rather be working as an employee – but it is a fair bet that some of the recent increase in self-employment reflects people who would rather not be self-employed but have set up their own businesses because they cannot find a company to employ them.

The headline unemployment figures do not tell the full story of the UK labour market during the recession and recovery. As well as a large increase in unemployment, there has been a large increase in underemployment – people working fewer hours than they would like.

This represents lost potential output to the UK economy, as well as lost income and lower living standards for those who find themselves underemployed, but it is far better for the economy in the long-run for people remain in work than for them to lose their jobs. Once people are out of work, there is a risk they lose touch with the labour market and find it impossible ever to get back into employment (as happened to thousands in the 1980s).

It is not clear, however, why underemployment is replacing unemployment as the response to economic weakness. There is no evidence of a renaissance in industrial relations at the whole economy level, but it seems that in many companies employers and workers are getting together to agree that more part-time working and cuts in real pay are preferable to lay-offs. You could say that some workers have decided that they are better off "all in it together" than seeing some of their number lose their jobs.

There is, however, one sense in which the increase in involuntary working is bad news, and that is for the outlook for employment once the economy does start to grow at a healthy pace. When this happens, before they start to recruit new workers, companies will want to bring back into use the underutilised resources represented by underemployment. Meanwhile, workers who are working part-time involuntarily will want to return to full-time employment before they see new colleagues alongside them. There is a limit to the "all in it together" sentiment, which means it is not likely to extend to those unfortunate enough to be unemployed.

At a macro level, the result is likely to be something of a "jobless" recovery. Stronger output growth, when it eventually arrives, accompanied by modest increases in employment – and stubbornly high unemployment – while part-time working falls and full-time working increases.

A worker is underemployed in the HK stock exchange. Photograph: Getty Images

Tony Dolphin is chief economist at IPPR

Photo: Getty Images
Show Hide image

Britain's shrinking democracy

10 million people - more than voted for Labour in May - will be excluded from the new electoral roll.

Despite all the warnings the government is determined to press ahead with its decision to close the existing electoral roll on December 1. This red letter day in British politics is no cause for celebration. As the Smith Institute’s latest report on the switch to the new system of voter registration shows, we are about to dramatically shrink our democracy.  As many as 10 million people are likely to vanish from the electoral register for ever – equal to 20 per cent of the total electorate and greater than Labour’s entire vote in the 2015 general election. 

Anyone who has not transferred over to the new individual electoral registration system by next Tuesday will be “dropped off” the register. The independent Electoral Commission, mindful of how the loss of voters will play out in forthcoming elections, say they need at least another year to ensure the new accuracy and completeness of the registers.

Nearly half a million voters (mostly the young and those in private rented homes) will disappear from the London register. According to a recent HeraldScotland survey around 100,000 residents in Glasgow may also be left off the new system. The picture is likely to be much the same in other cities, especially in places where there’s greater mobility and concentrations of students.

These depleted registers across the UK will impact more on marginal Labour seats, especially  where turnout is already low. Conversely, they will benefit Tories in future local, Euro and general elections. As the Smith Institute report observers, Conservative voters tend to be older, home owners and less transient – and therefore more likely to appear on the electoral register.

The government continues to ignore the prospect of skewed election results owing to an incomplete electoral registers. The attitude of some Tory MPs hardly helping. For example, Eleanor Laing MP (the former shadow minister for justice) told the BBC that “if a young person cannot organize the filling in of a form that registers them to vote, they don’t deserve the right to vote”.  Leaving aside such glib remarks, what we do know is the new registers will tend to favour MPs whose support is found in more affluent rural and semi-rural areas which have stable populations.  

Even more worrying, the forthcoming changes to MPs constituencies (under the Boundary Review) will be based on the new electoral register. The new parliamentary constituencies will be based not on the voting population, but on an inaccurate and incomplete register. As Institute’s report argues, these changes are likely to unjustly benefit UKIP and the Conservative party.

That’s not to say that the voter registration system doesn’t need reforming.  It clearly does. Indeed, every evidence-based analysis of electoral registers over the last 20 years shows that both accuracy and completeness are declining – the two features of any electoral register that make it credible or not. But, the job must be done properly.  Casually leaving 10m voters off the electoral resister hardly suggests every effort has been made.

The legitimacy of our democratic system rests on ensuring that everyone can exercise their right to vote. This is a task which shouldn’t brook complacency or compromise.  We should be aiming for maximum voter registration, not settling for a system where one in five drop off the register.