Something horrible may happen again

With a growing number of young people in the UK growing up in families where no one works, increasin

Imagine growing up in a family where no one works. How would you feel living in poverty and watching your parents struggle on benefits? It would inevitably have a huge impact on your perceptions of work. You may fear you will never find a job in the future. You may even feel it is "normal" not to have a job, not to go to work every day and earn a steady wage.

This is the reality for too many young people across the UK. There are now 1.93 million children living in households where nobody works, the highest number in the entire European Union. From April to June 2009, there were 4.8 million working-age people in workless households, an increase of half a million from the same period in 2008 and the highest number in more than a decade. And it is likely to rise a lot over the next couple of years.

The Prince's Trust report Destined for the Dole?, published on 10 August, investigates the intergenerational culture of worklessness. Worryingly, the trust's research suggests that thousands of young people are trapped in a cycle of deprivation. Those from families where nobody works are significantly more likely to struggle to find a job themselves and far less likely to feel confident about their future. Some are growing up believing their own destiny lies in the dole queue.

Who can blame them, when this is all they have seen while growing up? I fear that these young people may be locked out of the labour market for life unless they are freed from this cycle. The government, charities and employers must work together now to support them in finding jobs and providing for their own families in the future.

All things being unequal

“The 'big society' is an idea, not a plan," said the Cabinet Office minister Francis Maude. That makes it of no use whatsoever to these kids from workless households. Prime Minister David Cameron promises encouragement to charities and volunteer groups, but the sector is taking a big hit from the first round of cuts. The Office for Civil Society, the Tories' replacement for Labour's Office of the Third Sector, has slashed £11m from government funding for existing organisations. The youth volunteering charity V lost almost £7m, and a further £8m through the Department for Education's abolition of the Vschools programme. Compounding these statutory funding cuts, charitable giving falls in a recession.

Meanwhile, it is unclear how Cameron's plan to throw families out of their council houses is going to contribute to social cohesion. Where are these families supposed to live? Is the PM going to invite them to stay at his place(s)? Charity begins at home, after all, Dave.

New data published in the 2010 edition of Social Trends shows that income inequality in the UK is on the rise again. For example, the ratio between the earnings of those at the 90th percentile of real household disposable income and the earnings of those at the tenth percentile - the so-called 90-10 measure of income inequality - has risen steadily since 2004, from 3.98 to 4.22. The rich get richer and the poor get poorer. Indeed, income inequality is now higher in the UK than in all the other major European countries. Only Greece, Portugal and a few former communist countries have higher levels.

blanchflower graph

This inequality will only deepen as the economy slows again. The latest data from the Office for National Statistics shows that industrial production fell by 0.5 per cent in June from the previous month, though it was up 1.3 per cent on the year. What most commentators failed to notice was the big drop of around 1 per cent in the production of consumer durables, which hit its lowest level since this month last year.

On 6 August, the Organisation for Econ­omic Co-operation and Development (OECD) published its most recent composite leading indicators (CLIs), which point to changes in economic activity about six months in advance. The CLI for the UK, shown in the graph, "points to a peak in the pace of expansion", noted the OECD. Stronger signs of a peak in expansion have also emerged in Brazil and Canada. The CLI for Germany remains relatively robust, but Japan and Russia are facing future slowdowns, while the CLIs for China, France, India and Italy point to downturns in the coming months. In the United States, the CLI has turned negative for the first time since February 2009.

Anaemic recovery

The latest US labour market data, also released on 6 August, seemed to confirm that the economic outlook in America is taking a turn for the worse. There was a big decline in non-farm payroll employment in July. Economists had projected a small increase, but it fell by 131,000. Federal government employment dropped as 143,000 temps hired for the decennial census completed their work, while private-sector payroll employment edged up by 71,000. The unemployment rate was unchanged at 9.5 per cent because of a reduction of roughly 180,000 in the size of the labour force.

The Nobel Prize-winning economist Joseph Stiglitz said on 5 August that the US still faces an "anaemic recovery", requiring further stimulus measures from the government. On 10 August, the Federal Reserve voted 9-1 to reinvest proceeds from its mortgage holdings into longer-term Treasury securities, in an attempt to prevent the slowing US economy from sliding back into recession. It is the first time the Fed has moved to boost the economy since March 2009. A statement said: "The pace of economic recovery is likely to be more modest in the near term than had been anticipated."

If the economic picture in the UK starts to worsen, as I predict it will, a new round of monetary and fiscal stimulus would be appropriate here, too, and the Chancellor should start by cancelling that nonsensical increase in VAT planned for January. I am getting worried that something horrible is about to happen again.

David Blanchflower is a labour economist and a professor at Dartmouth College, New Hampshire, and the University of Stirling