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The following OECD assessment and recommendations summarise chapter 5 of the Economic Survey of the United Kingdom published on 29 June 2009.
Severe economic downturns can have pernicious and long-lasting effects on the labour market by lengthening the average duration of unemployment, thereby eroding skills and alienating retrenched workers from the job market. The incidence of long-term unemployment has been rising since 2007. In recent years, the government has introduced a range of measures aimed at increasing labour market flexibility and improving incentives for labour market participation. Existing programmes, however, may be under-resourced for the needs of the large number of people who are losing their jobs and the downturn will add to pressures on the low-skilled. The government has allocated substantial additional funding for active labour market policies in the Pre-Budget Report and in the Budget. Any further fiscal measures could fund an expansion of these programmes. However, these measures should be subject to careful ongoing evaluation to ensure that returns are sufficient. When the economy recovers, efforts to avoid entrenched long-term unemployment and low employment among some groups will be important. The recent success of the New Deal for Young People programme in activating long-term unemployed youth could be applied more broadly. The proportion of people on disability benefits remains high. The number of beneficiaries has fallen slightly in recent years reflecting the Pathways to Work scheme and other reforms. The important next step is for the scheme to be expanded to the entire stock of disability benefits recipients as the government plans to do from 2010 onwards.
Youth unemployment indicators¹
1. The OECD and euro area (12 countries) aggregates are unweighted averages. Preliminary data for 2007. Youth covers the age range 15 or 16 to 24 depending on the country.
2. Unemployment rate of youth minus the unemployment rate of adults (age 25-54).
Source: OECD (2008), OECD Employment and Labour Market Statistics - online database.
GDP per capita increased at a strong pace in the United Kingdom in the years before the financial crisis, spurred by globalisation. This improved the relative performance of the UK economy among OECD countries. Employment increased and labour productivity growth was strong, outpacing the euro area average and close to the US rate. However, there remains a substantial labour productivity gap relative to the best performers. Moreover, it is also now clear that some aspects of the United Kingdom’s recent growth performance reflected the credit cycle.
Flexible labour markets and competitive product markets should stand the economy in good stead during the recovery. However, there are a number of policy measures that need to be taken to underpin strong growth over the medium term. Firstly, improvements in public infrastructure are required, particularly in transport where airport and road congestion and continuing problems with the rail system constrain productivity. The government has brought forward some public investment projects on the Strategic Roads Network as part of the fiscal stimulus, and continues to target investment towards important infrastructure projects across transport modes. Overall government support for the railway over the five-year regulatory period, commencing in April 2009, will be over £15 billion. In addition, the government has gone some way in adopting the recommendations of recent reports on land use planning and transport infrastructure. However, while the fiscal arrangements have lifted infrastructure investment, more will need to be done, particularly to meet the government’s 2000 Ten Year Plan target. Secondly, although the property market is currently experiencing a severe downswing, reforms to improve the functioning of the market remain relevant to damp future swings in house prices. Planning procedures are being improved to ensure that demand is met and land released for housing purposes. Thirdly, raising training and education levels have to remain a priority to lift productivity and assist the low-skilled. In addition to improving the productive capacity of the economy, improved educational achievement and a better distribution of education resources would help to narrow socio-economic gaps and promote social mobility. Given the large variance in educational outcomes, continuing to improve access to pre-primary education, which has been shown to increase future education attainments particularly for children from disadvantage backgrounds, would be helpful.
Students performance based on PISA 2006¹
1. The OECD aggregate is an unweighted average.
Source: OECD (2007), PISA 2006: Science Competencies for Tomorrow's World, OECD Publishing.
Intergenerational earnings elasticity - estimates from various studies¹
1. The higher the parameter, the higher is the persistence of earnings across generations and thus the lower is mobility.
Source: d'Addio, A.C. (2007), ''Intergenerational Transmission of Disadvantage'', OECD Social, Employment and Migration Working Papers, No. 52.
How to obtain this publication
The complete edition of the Economic Survey of the United Kingdom is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
For further information please contact the United Kingdom Desk at the OECD Economics Department at firstname.lastname@example.org.
The OECD Secretariat’s report was prepared by Petar Vujanovic, Sebastian Barnes, Philip Davis and Peter Smith under the supervision of Peter Hoeller. Statistical assistance was provided by Joseph Chien.