Unemployment is the big political issue of 2009. The loss of more than a million jobs in the US in the final two months of 2008 is testimony to the savage shake-out following the financial market meltdown last autumn. Barack Obama’s emergency package will be sold as all that stands between America and the return of the Great Depression.
In the UK, the labour market has deteriorated for the past year, but the outlook has become far bleaker over the past few months. Gordon Brown’s jobs summit in Downing Street is all about ensuring that those thrown out of work in the coming months do not become part of a lost army of the long-term unemployed. There is, in all honesty, a limit to what policymakers can do and they know it. Unemployment is bound to rise in the US, stimulus package or not. Brown can hold a jobs summit every other day until Easter, but the daily drip feed of redundancies will continue relentlessly.
Even so, active labour market policies are still worth the effort. The lesson of the 1980s is that when people lose touch with the labour market altogether, the loss of skills and motivation has dire personal and social consequences. Ministers are particularly worried about the rise in unemployment in the under-24 age group, because there is evidence that a spell on the dole when you are young leaves the deepest scars.
Brown also believes an interventionist strategy would have a beneficial impact on the wider economy, because the fear of being made unemployed is affecting consumer confidence and spending. For now, the government is sticking to its forecast of a savage but short recession, but that will not come to pass if there are negative-feedback effects from rapidly rising unemployment back into the housing market, where prices are falling at an annual rate of 25-30%. As things stand, it is hard to envisage the economy bottoming out in the summer, as Alistair Darling predicted in the pre-budget report, but the feeling in Whitehall is that the economy may still show unexpected resilience this year – provided there is a comprehensive package for jobs, housing and banking that dovetails with the boost to growth from macro-economic policy.