Over ten per cent of Britain's possible labour is wasted

Combining underemployment and unemployment shows the output gap is much bigger than previously estimated.

Our own economics editor, David Blanchflower, has a new paper out today co-authored with David Bell of the University of Stirling, taking a deeper look at underemployment.

Increasingly, the issue is being understood as one of the major crises in the UK today. It explains how our unemployment rates have recovered far more quickly than GDP growth would lead us to expect, as well as providing a hypothesis about the UK's falling productivity levels (if full-time permanent workers have are more productive than part-time and temporary workers, then high underemployment would hinder the UK's productivity).

While it's usually better to be under-employed than unemployed (because the number of people who are actually better off on benefits is vanishingly small), it's no walk in the park. At best, underemployment results in wasted potential in the same way as unemployment, with people who could work more not having the choice. And working for one day a week is much less than a fifth as good as working for all five: you can't buy a weekly travelcard, meaning commuting costs more; you can't build up expertise or connections at work; and you spend the vast proportion of your income on essentials, leaving little left over after the bills are paid (a problem that also afflicts people in full-time employment, of course).

On top of that, as Jonathan Portes points out, underemployment is an issue which overwhelmingly affects young people (of whom 1 in 5 are already unemployed):

In 2012, 30 per cent of those aged 16 to 24 that did have jobs wished to work longer hours. This means that the labour market for the young is even more difficult than the raw unemployment rates imply. Even if there was an upturn in demand, employers would likely extend the hours of existing workers before taking the risk of hiring new young employees.

But the thing is, despite underemployment being such an important issue, we don't have any great way to measure it. The unemployment figures include statistics asking people in part-time and temporary positions whether they'd rather be in full-time permanent jobs, which is a good start, but it's an overly simplistic measure (what about part-timers who want to stay part time but have more hours?), and it fails to properly capture the interplay between un- and under-employment.

Separately, the annual Labour Force Survey asks respondents whether they are looking for more hours of work at the same pay, and how many hours they are actually working; but those measures are even harder to compare to the unemployment data, and are far too infrequent to be of much use.

That's where Blanchflower and Bell step in. By combining those two measures with the general unemployment rate, they have put together an "underemployment" index. They write:

Like the unemployment rate, it is expressed as a percentage. It can be thought of as measuring the ratio of net unemployed hours to total available hours assuming that the hours preferences of the employed at current wages are met.

If everyone who was employed was working exactly the number of hours they wanted to be, then the index would be the same as the unemployment rate. In fact, it can fall below the unemployment rate, in times when the majority of employed workers would rather reduce their hours – and that's how it was in the boom years. But once the great recession hit, the index diverged markedly:

It's an important measure, because it reflects not only the "external" labour market that most of us see – unemployed people hunting for jobs – but also the "internal" labour market: people with work, negotiating with their employers for more or less work. As a result, the authors write:

This index gives perhaps a broader estimate of the extent of underused capacity in the economy – the output gap – than a simple measure based on the unemployment rate.

The policy implications, they write, are clear. Taking a narrow view, the ONS needs to pick up the ball on this, and start publishing the data alongside the broad unemployment index. But in the broader sense:

There is very substantial spare capacity in the labour market; the implication being that if demand were higher, output could easily be higher, and it could be higher without exerting any significant upward pressure on real wages. So any further stimulus, whether fiscal or monetary, would not be inflationary. People want to work.

Looking at underemployment as well as unemployment confirms that the stagnation Britain has experienced is unlikely to be purely, or even mainly, structural. Stimulus is likely to lead to more employment, not more inflation; and so it should be done as soon as possible.

Staff in a dispatch centre package goods to ship. Shift workers are frequently underemployed. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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A progressive alliance in the Richmond by-election can scupper hard Brexit

Labour and the Greens should step aside. 

There are moments to seize and moments to let go. The Richmond by-election, triggered by Zac Goldsmith's decision to quit over a third runway at Heathrow, could be a famous turning point in the politics of our nation. Or it could be another forgettable romp home for a reactionary incumbent.

This isn’t a decision for the Tories and their conscientious objector, Goldsmith, who is pretending he isn’t the Tory candidate when he really is. Nor is it a decision for the only challenger in the seat – the Liberal Democrats.

No, the history making decision lies with Labour and the Greens. They can’t get anywhere near Zac. But they can stop him. All they need to do is get out of the way. 

If the Lib Dems get a clear run, they could defeat Zac. He is Theresa May's preferred candidate and she wants the third runway at Heathrow. He is the candidate who was strongly Leave when his voters where overwhelming Remain. And while the Tories might be hypocrites, they aren’t stupid – they won't stand an official candidate and split their vote. But will Labour and the Greens?

The case to stand is that it offers an opportunity to talk nationally and build locally. I get that – but sometimes there are bigger prizes at stake. Much bigger. This is the moment to halt "hard" Brexit in its tracks, reduce the Tories' already slim majority and reject a politician who ran a racially divisive campaign for London mayor. It’s also the moment to show the power of a progressive alliance. 

Some on the left feel that any deal that gives the Lib Dems a free run just means a Tory-lite candidate. It doesn’t. The Lib Dems under Tim Farron are not the Lib Dems under Nick Clegg. On most issues in the House of Commons, they vote with Labour.

And this isn’t about what shade of centrism you might want. It is about triggering a radical, democratic earthquake, that ensures the Tories can never win again on 24 per cent of the potential vote and that our country, its politics and institutions are democratised for good.

A progressive alliance that starts in Richmond could roll like thunder across the whole country. The foundation is the call for proportional representation. The left have to get this, or face irrelevance. We can’t fix Britain on a broken and undemocratic state. We cant impose a 21st century socialism through a left Labour vanguard or a right Labour bureaucracy. The society we want has to be built with the people – the vast majority of them. Anyway, the days of left-wing majority governments have come and gone. We live in the complexity of multi-party politics. We must adapt to it or die. 

If the Labour leadership insists on standing a candidate, then the claims to a new kind of politics turn to dust. Its just the same old politics – which isn’t working for anyone but the Tories. 

It is not against party rules to not stand a candidate – it is to promote a candidate from another party. So the way is clear. And while such an arrangement can't just be imposed on local parties, our national leaders, in all the progressive parties, have a duty to lead and be brave. Some in Labour, like Lisa Nandy, Clive Lewis and Jonathan Reynolds, are already being brave.

We can wake up the Friday after the Richmond Park by-election to Goldsmith's beaming smile. Or we can wake up smiling ourselves – knowing we did what it took to beat the Tories, and kickstart the democratic and political revolution this country so desperately needs.


Neal Lawson is chair of the pressure group Compass, which brings together progressives from all parties and none. His views on internal Labour matters are personal ones.