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Back to work, slowly

Douglas Fraser | 20:10 UK time, Tuesday, 17 November 2009

Prospects for unemployment in Scotland could be worse.

That's if we were in the 1980s, when the recession was accompanied by a long, painful restructuring of the economy, from which some are yet to recover.

But there's plenty pain in the data out so far this month.

The Fraser of Allander Institute at Strathclyde University reckons on a peak to the numbers seeking work, at some point next year, around 243,000 - two-thirds of them on Jobseeker's Allowance. That's 40,000 up on the most recent (July-September survey) figures.

Its respected commentary, published three times a year, is backed by PricewaterhouseCoopers.

Oddly enough, that management consultancy produced its own figures earlier this month and they look even worse. They see a further rise of 58,000.

No region of the UK is immune, but the PwC figures suggest Scotland's position looks worse than most.

It's on track for a rise similar to Yorkshire and north-east England. Only the West Midlands have a gloomier outlook, and the harsh times for manufacturing mean it already has 10% unemployment.

Stretched elastic

This recession is like no other, in many ways. The Fraser of Allander analysis published today has had to concede that its forecast published last June undershot the 2009 decline, suggesting it would be 2.9% whereas it now looks like 5%.

But apart from the figures, look in more depth at the Fraser of Allander analysis.

Among the significant issues arising is that employers' capacity for stretching their current workforce across diminished amounts of workload has to run out of elastic at some point.

The 8% peak to trough decline leaves a lot of spare capacity not being met by depleted demand.

"The 'flexible workforce' has been cited as one reason for unemployment rates to be lower than had been feared, but the limits to flexibility may be approaching," writes the Institute's Cliff Lockyer.

His work highlights comparisons with past recessions, which are a sobering reminder of the way unemployment tends to lag recovery in the broader economy.

Double dips

In the recession of 1974-75, unemployment continued to rise to 1977, eased a bit in 1978 and then peaked in December 1978. There were then 147,300 on unemployment benefit - not much above the 134,000 level we've already reached in this downturn.

In the 1980-81 recession, the claimant count started rising again in September 1979, and remained on an upward trend to a peak in January 1987. Yes, that's more than seven years of increases.

In 1990-91, Scotland had a softer landing than much of the UK. Technically, it didn't even go into recession, but unemployment rose to a peak in December 1992, at 248,000. It took until May 1995 to get back below 200,000.

Fraser of Allander cites work by another think tank, the National Institute of Economic and Social Research, showing that past UK recessions have never taken less than 40 months (three and a third years) to reach pre-recession levels of output.

In the 1980s and 1930s, it took more than 50 months.

And with the exception of the early 1990s, recessions had "double dips", with the second downturn occurring 18, 28 and 30 months after the most recent pre-recession peaks.

Today's analysis suggests Scotland can expect at least one quarter of decline next year - most likely in the third or fourth quarters. Its more pessimistic projection sees two quarters, which technically means another bout of recession.

And another significant point worth highlighting from Cliff Lockyer's work is the role of unions. The private sector has been able to shed staff and restructure without sparking a widespread employee revolt.

Workplace conflict

But recent postal workers' strikes hint at a different prospect for the public or nationalised sector, as a severe squeeze looms on government spending.

A key factor will be the level of trade unionisation. In 1979, at the time of the Winter of Discontent, 55% of the workforce was unionised, meaning 13 million workers.

By last year, membership was not much above half that, at 6.9 million, and union membership had fallen to 27% of the workforce.

The difference between unionisation of the public and private sectors is, well, striking. In Scotland, union membership ran to 33% of workers. In the private sector, that was 17%, while the public sector stood at 66%.

That's a huge gap.

The questions now: how militant and organised will those unions be in response to cuts: how much of a chilling effect will high unemployment have on those who respond with industrial action: and how well can public sector managers handle the squeeze and avoid workplace conflict?

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