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UK labour market faces deep structural problems

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The greatest challenge to combating unemployment is not a return to economic growth but deeper problems that lead to long-term joblessness, the CBI has claimed.

In its latest report, entitled Mapping the Route to Growth: Rebalancing Employment, the business group maintained that even in the decade before the downturn there were serious fissures in the UK labour market.

The period of growth in the years up to 2008 simply masked the entrenched deficiencies in the system.

The CBI study highlighted regional pockets of stubborn unemployment and inactivity, high public sector dependency and chronic skills shortages as persistent and enduring problems.

There are currently 2.46 million unemployed people in the UK. The CBI said it expected this figure to continue rising through 2011, peaking around 2.6 million, before edging lower during 2012.

However, the cyclical rise and fall in employment has hidden a deep-rooted issue with long-term joblessness.

Unemployment, the CBI argued, does not follow a simple North-South divide. Hopes that regional disparities had begun to close since the 1990s were undermined by the 2008-09 recession, which had an asymmetric impact across the UK. During the recession, the increase in the unemployment rate ranged from 25 per cent in the East Midlands to 77 per cent in Northern Ireland.

Urban areas tend to suffer from pockets of high unemployment, but cities where the local economy is geared to services or hi-tech work tend to have lower unemployment such as, for example, parts of Manchester and Edinburgh.

Areas with the strongest jobs growth over 2004-07 actually saw the most rapid falls in employment during the recession. This suggested that in many cases job creation was driven by a cyclical economic boom rather than by sustainable structural improvement in the labour market, the CBI said.

The UK is expected to see an acceleration in the shift towards higher-level occupations. By 2017, 56 per cent more jobs will require people to hold graduate-level qualifications, while demand for people with no qualifications will fall by 12 per cent.

Traditionally, lower-skilled jobs have served as entry points for those moving out of unemployment, and the decline in their availability emphasises the need for everyone to have a minimum platform of skills.

John Cridland, the CBI’s director general, said: “The Government has rightly focused on tackling the structural deficit in the public finances, but needs to apply the same rigour to attacking the structural jobs deficit.

“The boom years before the recession masked the extent of deep-rooted problems in parts of the labour market, including long-term unemployment and an unhealthy dependency on the public sector. These problems will not disappear with the economic recovery and left unchecked will have grave social and economic consequences.

“Only private sector growth can create the jobs we need and we must ensure the fruits of recovery are felt in every region. We need to get the UK working and that is going to require fresh thinking and innovative solutions.”

Mr Cridland added: “The answer is not bussing people to where the jobs are. We need to tackle the structural causes of unemployment, while doing all we can to get the private sector really motoring in all regions of the UK.”