Page last updated at 23:08 GMT, Tuesday, 30 June 2009 00:08 UK

A tale of three recessions

1979 Tory election poster
The Tories made unemployment a key election issue in the 1970s -and then faced a deep recession

Analysis
By Steve Schifferes
Economics reporter, BBC News

The UK has now experienced four quarters of recession, according to the latest figures from the Office for National Statistics. The total decline in output in the UK has now reached 4.9% since the recession began in April 2008.

But how does this compare to previous recessions? And what does the history of the UK economy's response to these recessions suggest about the future path of our current downturn?

The two most severe recessions in post-war Britain were in the 1980s and the early 1990s.

three recessions

The 1980s recession, which began in the third quarter of 1979, led to an overall output loss of 4.6%, while the 1990s recession - which was shorter and less severe - led to a 2.5% fall in output.

So already the current recession has shown a sharper fall in growth than previous downturns.

We do not know how long the current recession will last, and there are even some suggestions that growth will return to positive territory this quarter.

The picture for jobs and growth is already bleaker than the last recession, and is looking more like the deep recession of the 1980s every day
TUC General Secretary Brendan Barber

However, the historical evidence shows that it takes the UK economy a long time to return to "trend growth" of around 2.5%, which is large enough to lead to job creation.

In the past two recessions, while negative growth lasted only 5 or 6 quarters, there was weak growth of around 1% or less for much of the next two years.

Unemployment

The position is even worse when it comes to unemployment, according to Professor Paul Gregg of Bristol University.

Evening Standard headline board
More jobs are being lost in finance

He points out that it takes nearly five years after a recession begins for unemployment to return to its pre-recession levels, based on the experience of the 1980s and 1990s.

Professor Gregg says that so far, the fall in unemployment this time has been just as rapid as in previous recessions.

In this recession, unemployment rate (based on ILO measures) has risen from 5.6% in July 2008 to 7.3% in April 2009, and many observers believe it will reach 10% in 2010.

Unemployment was lower this time than in the two previous recessions, but has been rising more rapidly.

In the 1980s, unemployment doubled from 5.9% to 12% in the second quarter of 1984. Unemployment was associated with industrial restructuring, and particularly hit male manufacturing jobs in the North.

In the 1990s, unemployment was already high at 7.2% when the recession began, but rose less to a peak of 10.8% by the first quarter of 1993.

As in previous recessions, jobless rates are now highest for the unskilled and those living in deprived regions.

But there is some evidence that black and ethnic minority employment is not being as heavily impacted as in earlier recessions.

Effect on pay

The recession is also having an sharp effect on pay.

jobs graph

Average earnings growth has fallen steadily since the recession began from a annual rate of 4% to 2.5%

Union-negotiated pay settlements are falling even further, to an average of around 2%, according to Alastair Hatchett of Income Data Services.

However, he points out that this time, manufacturing companies and workers are seeking short-term working and pay freeze agreements in order to retain skilled workers, in contrast to the mass layoffs in the 1980s.

Manufacturing employment has declined sharply since then, and the financial services sector has now overtaken it in terms of employment, as has work in the public sector in jobs in education, health care, and administration.

In this recession there has been a sharp fall for the first time in financial sector employment and a rapid rise in unemployment in London and the Southeast.

So far, public sector employment has held up, but the huge pressures on public spending in the future could reverse this source of job growth.

However, there are some differences. In the 1990s, the rise in unemployment was masked by many people taking early retirement and going on disability benefit - something which has not happened so far.

Women's employment, which continued to rise during the l980s recession, may be more affected this time, as the number of women in the workforce is much higher.

Widespread uncertainty

There is still tremendous uncertainty about the future path of the UK economy.

Some economists believe that there could be a relatively rapid, V-shaped recovery as confidence is restored and the effects of the huge government bail-outs and fiscal boosts take effect.

Others, such as Martin Weale, director of the National Institute of Economic and Social Research, warn that there could be a "double-dip" recession, and others, including the IMF and the OECD, are suggesting that the recovery from a banking crisis could be exceptionally weak.

But the historical evidence suggests that, whatever the shape of the recovery, the effects of the downturn, especially on unemployment and consumption, are likely to be long-lasting.

TUC General Secretary Brendan Barber has no doubt that this is the worst recession in 60 years.

"The picture for jobs and growth is already bleaker than the last recession, and is looking more like the deep recession of the 1980s every day," he says.

"There are no signs that the outlook for unemployment is starting to improve."



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