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UK - Deep-rooted structural problems won't be solved by recovery alone

13 June 2011

The Confederation of British Industry (CBI) today unveiled detailed analysis of the UK labour market, which reveals deep-seated structural problems which will not be solved by a return to economic growth alone.

The report, Mapping the route to growth: rebalancing employment, marks the start of a major new project for the CBI which will explore what is needed to get the UK working.

By mapping the state of the labour market region-by-region, the CBI's analysis reveals that the decade of growth before the recession masked entrenched problems, including pockets of long-term unemployment and inactivity, high public sector dependency and serious skills shortages.

Projections of future employment trends suggest these labour market divisions will deepen as the recovery continues, with highly-skilled jobs expected to be most in demand in London and the South East, compared with the North East and West Midlands.

John Cridland, CBI Director-General, said "the government has rightly focused on tackling the structural deficit in the public finances, but needs to apply the same rigour to attacking the structural jobs deficit."

"The boom years before the recession masked the extent of deep-rooted problems in parts of the labour market, including long-term unemployment and an unhealthy dependency on the public sector. These problems will not disappear with the economic recovery and left unchecked will have grave social and economic consequences."

"Only private sector growth can create the jobs we need and we must ensure the fruits of recovery are felt in every region. We need to get the UK working and that is going to require fresh thinking and innovative solutions."

The report sets out the complexity of the unemployment problem, which is linked to many factors including skills, local economic performance, welfare dependency, educational achievement and infrastructure.

Looking at the state of the labour market in more detail, there are currently 2.46 million unemployed people in the UK. The CBI expects this to continue rising through 2011, peaking around 2.6 million, before edging lower during 2012. However, the cyclical rise and fall in employment has hidden a deep-rooted problem of long-term unemployment and economic inactivity.

Five million working age people receive out of work benefits, with 1.4 million of these having received benefits for nine of the last ten years.

Two million children grow up in households where no one works and these children are more likely to fail to achieve in school, perpetuating the cycle. Since the start of the recession youth unemployment has risen significantly with 935,000 16 to 24 year-olds out of work.

Mr Cridland added "our analysis shows that problems in the labour market do not follow a simple North-South divide, but are far more complex."

"The answer is not bussing people to where the jobs are. We need to tackle the structural causes of unemployment, while doing all we can to get the private sector really motoring in all regions of the UK."

Key findings include:

• Unemployment does not follow a simple North-South divide. Hopes that regional disparities had begun to close since the 1990s recession were undermined by the 2008-09 recession, which had an asymmetric impact across the UK. During the recession, the increase in the unemployment rate ranged from 25% in the East Midlands to 77% in Northern Ireland.

• Urban areas tend to suffer from pockets of high unemployment. These include: Teesside, Hull, Liverpool and South Wales. Areas where the local economy is geared to services or hi-tech work tend to have lower unemployment, for example, parts of Manchester and Edinburgh.

• Areas with the strongest jobs growth over 2004-07 saw the most rapid falls in employment during the recession. This suggests that in many cases job creation in these areas was driven by a cyclical economic boom, rather than sustainable structural improvement in the labour market.

• Public sector dependency is particularly high in Wales, parts of Scotland, Northern Ireland, the North East and Merseyside, but less so in Cumbria, the Midlands and South of England.

• The UK is expected to see an acceleration of the shift towards higher-level occupations. By 2017, +56% more jobs will require people to hold graduate-level qualifications, while demand for people with no qualifications will fall by -12%.

• Traditionally, lower-skilled jobs have served as labour market entry points for those moving out of unemployment, and the decline in their availability emphasises the need for everyone to have a minimum platform of skills.

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