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.

Photo: Getty
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Seven things we learnt from the Battle for Number 10

Jeremy Corbyn emerged the better as he and Theresa May faced a live studio audience and Jeremy Paxman. 

1. Jeremy Corbyn is a natural performer

The Labour leader put in a bravura performance in both the audience Q&A and in his tussle with Jeremy Paxman. He is often uncomfortable at Prime Minister’s Questions but outside of the Commons chamber he has the confidence of a veteran of countless panels, televised discussions and hustings.

If, like me, you watched him at more hustings in the Labour leadership contests of 2015 and 2016 than you care to count, this performance wasn’t a surprise. Corbyn has been doing this for a long time and it showed.

2. And he’s improving all the time

Jeremy Corbyn isn’t quite perfect in this format, however. He has a temper and is prone to the odd flash of irritation that looks bad on television in particular. None of the four candidates he has faced for the Labour leadership – not Yvette Cooper, not Andy Burnham, not Liz Kendall and not Owen Smith – have managed to get under his skin, but when an interviewer has done so, the results have never been pretty for the Labour leader.

The big fear going into tonight for Corbyn was that his temper would get the better of him. But he remained serene in the fact of Paxman’s attempts to rile him until quite close to the end. By that point, Paxman’s frequent interruptions meant that the studio audience, at least, was firmly on Corbyn’s side.

3. Theresa May was wise to swerve the debates

On Jeremy Corbyn’s performance, this validated Theresa May’s decision not to face him directly. He was fluent and assured, she was nervous and warbly.  It was a misstep even to agree to this event. Anyone who decides their vote as far as TV performances tonight will opt for Jeremy Corbyn, there’s no doubt of that.

But if she does make it back to Downing Street it will, in part, be because in one of the few good moves of her campaign she chose to avoid debating Corbyn directly.

4.…but she found a way to survive

Theresa May’s social care U-Turn and her misfiring campaign mean that the voters don’t love her as they once did. But she found an alternate route through the audience Q&A, smothering the audience with grimly dull answers that mostly bored the dissent out of listeners.

5. Theresa May’s manifesto has damaged her. The only question is how badly

It’s undeniable now that Theresa May’s election campaign has been a failure, but we still don’t know the extent of the failure. It may be that she manages to win a big majority by running against Jeremy Corbyn. She will be powerful as far as votes in the House of Commons but she will never again be seen as the electoral asset she once was at Westminster.

It could be that she ends up with a small majority in which case she may not last very much longer at Downing Street. And it could be that Jeremy Corbyn ends up defeating her on 8 June.

That the audience openly laughed when she talked of costings in her manifesto felt like the creaking of a rope bridge over a perilous ravine. Her path may well hold until 8 June, but you wouldn’t want to be in her shoes yourself and no-one would bet on the Conservative Party risking a repeat of the trip in 2022, no matter what happens in two weeks’ time.

6. Jeremy Paxman had a patchy night but can still pack a punch

If Jeremy Paxman ever does produce a collected Greatest Hits, this performance is unlikely to make the boxset. He tried and failed to rouse Jeremy Corbyn into anger and succeeded only in making the audience side with the Labour leader. So committed was he to cutting across Theresa May that he interrupted her while making a mistake.

He did, however, do a better job of damaging Theresa May than he did Jeremy Corbyn.  But not much better.

7. Theresa May may have opposed Brexit, but now she needs it to save her

It’s not a good sign for the sitting Prime Minister that the audience laughed at many of her statements. She had only one reliable set of applause lines: her commitment to getting the best Brexit deal.

In a supreme irony, the woman who opposed a Leave vote now needs the election to be a referendum re-run if she is to secure the big majority she dreams of. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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