This graph summarises one of the big puzzles of our time: even when times are good, why are we unable to replicate the low rates of unemployment that prevailed 50 years ago?
In the UK, and across much of Western Europe, unemployment has never been as low as it was during the 1960s and early 70s. Even during the early 2000s – our most recent period of stable economic growth – unemployment was more than double the rate of the 60s and early 70s. Between 2000 and 2008 unemployment averaged 5.1%; between 1960 and 1974 it averaged 1.9%. A click on the graph reveals the numbers in more detail.
There’s not much of a consensus as to what’s causing this step change, which is surprising given its significance. There are some predictable factors such as changes to welfare benefits and trade union influence, but welfare benefits have become less generous over the last half century and trade union power has dwindled since the 1960s, so these explanations don’t seem very compelling.
The answer might lie in an unexpected place: the housing market. There’s evidence that higher rates of owner occupation are associated with higher rates of unemployment, even though homeowners tend to be unemployed less often. Compared to renting, owning a house carries significant moving costs which make it more difficult to relocate to find work, and this inflexibility in labour supply might just be behind the higher unemployment rates we see today. So the huge rise in homeownership that’s taken place since the 1970s might be the missing piece of the unemployment puzzle.
Data from Annual Labour Force Survey available from OECD.StatExtracts