What should be done about rising unemployment in the UK?

This paper considers the issue of unemployment one of the most pressing issues facingthe UK and other governments, as the current recessions deepens. It begins by trying toaccurately date the beginning of the current downturn in the British economy, arguingthat it is clear that the recession commenced in the 2nd quarter of 2008. It then examineswhether this recession is substantively different from past downturns in the UK andargues that, although the extreme rationing up of credit marks the current recession asdifferent, some of the labour market consequences, such as the concentration ofunemployment among the young and other disadvantaged groups, is typical of pastexperience.The paper reviews past literature on the causes of unemployment, arguing that the originof the present difficulties lies with a collapse in demand rather than with frictions in thelabour market caused by institutional inflexibilities. There is a large literature on thenegative impact of unemployment both on society and on individuals. The adversesocietal consequences are reviewed in the next section, while we discuss some of ourown research on the adverse consequences on the individual in Section 6.Just as in previous recessions, it is becoming clear that some groups will suffer a muchhigher incidence of unemployment during this downturn and therefore suffer to a greaterthan average extent the adverse individual effects that we discussed in Section 6. Theevidence on the composition of these groups is reviewed and presented along with someof our own research on this issue in the following section.One of the key groups who are likely to be affected by the recession is the young. InSection 8, we review the particular difficulties faced by them in trying to secure a footingin the labour market. In the last two decades many governments have introduced policies(collectively described as Active Labour Market Policies or ALMPs) for directintervention in the labour market to improve outcomes for particular groups and for theyoung in particular. The next section reviews the evidence on the success of thesepolicies. The final section discusses some policy proposals which we offer to alleviatewhat we believe will be the very serious adverse consequences of the likely increase inunemployment in the UK over the short to medium term.