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UK unemployment is three times higher than official rate, says think tank

Rishi Sunak - Owen Humphreys/PA
Rishi Sunak - Owen Humphreys/PA

Unemployment across the UK is three times higher than official figures suggest, a think tank has warned, amid a shortage of high-quality jobs which is plaguing Britain’s labour market.

The UK's official rate of unemployment is 3.7pc, but this triples to 12.1pc when accounting for the three million people who have left the workforce “involuntarily”, according to the report by the Centre for Cities.

This is because the official rate only measures those who are actively looking for employment and does not include people who are neither in work nor looking for a job, such as students, pensioners or carers.

Paul Swinney, a director at Centre for Cities, said: “When we look at that very specific element of economic inactivity, we see that there's a large number of those people that could be in the jobs market.

“So the potential workforce will be much larger than what it currently is.”

These may be people who stop looking for a job if they are discouraged, believe there are no jobs or struggle to work because of health issues, the think tank said.

It said the Government must focus on boosting skills and supporting job creation as part of delivering its levelling up strategy.

Andrew Carter, chief executive of Centre for Cities, said: “With the UK now likely to enter a recession, the Government must address its insufficient action on levelling up so far and act swiftly to create more opportunities to get people back into the labour force.

“This will require setting out and implementing an agenda that delivers much-needed investments in skills and public services, while supporting job creation in struggling places.”

Chancellor Jeremy Hunt made a special appeal to Britons who have dropped out of the labour force in a speech last week, urging them to return to work.

He said: “To those who retired early after the pandemic or haven't found the right role after furlough, I say Britain needs you.

“We will look at the conditions necessary to make work worth your while.”

The UK’s employment rate remains one percentage point below its pre-Covid level at  75.6pc, making it an outlier among advanced economies.

But while many businesses report that they are struggling to find enough workers, Centre for Cities said many urban areas face “a long-term jobs shortage problem rather than a short-term lack of workers”.

Many of the people the Chancellor wants to return to work would be based in the North of England, the analysis found, but face the greatest barriers to doing so.

Mr Swinney said: “If you look at the geography of it, what we see is that this army of hidden workers is much larger in northern towns and cities than in southern ones.”

Of the ten places with the highest hidden unemployment rates, nine are in the North of England, with one in Wales. Meanwhile eight of the ten urban areas with the lowest rates are in the South.

Blackburn, Middlesbrough and Sunderland have the highest hidden unemployment, according to the research.

While the unemployment rate is just shy of 6pc in these cities, it rises to 21pc in Blackburn and 20pc in Middlesbrough and Sunderland when including involuntarily inactive people.

Meanwhile, Reading, Basildon and Gloucester have the lowest rates of hidden joblessness.

The main reasons for these geographical disparities are health, skill levels and the availability of jobs, according to Mr Swinney.

He said: “Health is a much bigger issue in towns and cities across the North that seems to be driving a lot of the reason why people are not in the jobs market.”

A much higher share of people also have no formal qualifications in these areas. People with poor skill levels are generally much less likely to be in the job market, he said.

However, Mr Swinney said that even for those ready to rejoin the workforce, many Northern cities and towns face additional challenges.

He added: “In a place like Blackburn, what the data says is that you can get these people work-ready but the jobs just aren't there.

“What this shows is that [growing the workforce] is much more achievable in a place like Reading. The number of people who are in this hidden group is smaller there but there are also lots more jobs to take up than in a place like Middlesbrough”.

The Bank of England’s chief economist Huw Pill has previously warned that worker shortages arising from the shrinking labour force could make it harder to bring inflation down in the UK than in other countries.