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Ian Brinkley
Economic Advisor
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Ian Brinkley

Underemployment in the UK -the latest figures

Authors: Ian Brinkley

22 March 2016

Policy makers often monitor progress in the labour market by the unemployment rate. It is a key indicator for the Bank of England as the lower the rate of unemployment goes the greater the chance that inflationary pressures will start to build up. For much the same reason it is also watched closely by the Office for Budget Responsibility (OBR) as it may influence what the OBR thinks will happen to inflation and productivity and that in turn will impact on their judgement on whether the Government’s spending plans are credible.

Although unemployment has now fallen to just over 5 per cent, there is still no sign of wage inflation. One reason is that unemployment is only one measure of how much “slack” there is the UK labour market. We also have to take account of those in work who would like to work more hours and those who want to work fewer hours. This gives us a measure of under-employment, a wider and more comprehensive guide about how far the labour market has to go before inflationary pressures may become a problem.

The latest edition of the “under-employment” index developed by Professors Bell and Blanchflower shows that there is much more slack in the labour market than the unemployment rate alone would indicate. In 2015Q4 the unemployment rate averaged 5.1 per cent, but the under-employment index gave a figure of 6.2 per cent. The under-employment index before the crash was around 4.5 per cent, so there is still some way to go before the labour market returns to where it was at the end of 2007. Both the Bank and the OBR can be reassured that wage inflation is unlikely to return to the UK anytime soon.

As shown before, there were significant differences across groups in the labour market. Unemployment among men is higher than unemployment among women, but the under-employment measure shows the reverse – under-employment among women is 7 per cent and just under 6 per cent for men. The index also confirms that under-employment among the young is extensive – the under-employment rate in 2015Q4 was nearly 21 per cent. It is also much higher for some ethnic minority groups – the under-employment rate among those classified as Asian was nearly 11 per cent and for those classified as Black it was over 18 per cent. In contrast, the under-employment rate among those classified as White was just over 5 per cent.

This reinforces the need for specific policies to address severe under-employment among these groups, as previous experience tells us under-employment is likely to remain high among the young and among some ethnic minorities even if the pre-recession levels are regained.

The table below summarises the main findings.
2015 - Q4
Unemployment rate (%)
Under-employment rate (%)
 All  5.1  6.2
 White  4.5  5.3
 Men  5.2  5.7
 Women  5.0  7.0
 Asian  7.9  10.6
 Black  13.7  18.3
 Young (16-24)
 13.6  20.6