Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

Archive for the tag “Unemployment”

A Recovering Britain?

The new Bank of England Governor, Mark Carney, has shown impeccable timing. He leaves Canada in the best shape of the G7 members, boasting GDP at least 5% higher since the crisis began  compared to Britain, where GDP has still yet to catch up to its previous peak.  But he also leaves the country with some long term problems that he won’t have to deal with. Canada is facing a rising debt problem as more and more consumers are borrowing money they don’t have. This is compounded by Mr Carneys low interest rates, which are needed to boost growth but are now encouraging reckless borrowing. Growth is also slowing this year, with the Canadian central bank now cutting projection for the next few years.

As this graph shows, Britain is experiencing a worryingly slow recovery compared to previous years, with GDP still somewhat below the 2008 peak.  

In contrast he arrives in the UK at a possible turning point.  After five years of a deep recession followed by a failed recovery, the statistics are now finally pointing to better times. Manufacturing and construction are growing, consumer confidence is improving and new schemes to help boost lending and property buying seem to be working. GDP is set to grow at around 1% this year if the economy stays on track and unemployment is staying low compared to the rest of Europe.

Yet there is an underlying problem in Britain’s economy that will prove hard to fix for the new Governor.

The average wage in the UK has declined by 5.5% since mid 2010 when adjusted for inflation, falling further than some of the worse off countries in the EU like Spain. This won’t surprise Britons, where the cost of living is squeezing the incomes of many households. As wages have remain restricted since the recession by companies that can either not afford the higher costs or are simply taking advantage of the desperate workforce, inflation has been increasing at between 2-4% a year. This can particularly be seen in the steep rises of energy bills, which have  more than doubled in the period from 2004 to 2011. More price rises are set to happen in the future too, with some energy companies suggesting bills will be £100 more than government projections state for 2020.

As this graph shows, Wages and inflation have diverged negatively since the recession, squeezing real incomes. Found at

Even the new positive growth numbers hide this problem. Instead of salary rises, people are turning to borrowing again to supplement their income. Personal debt has increased by £4 billion in the last year and is worryingly becoming a necessity for families to keep up current costs, along with benefits. If growth recorded in the first quarter at 0.3% had been based on wages, it would have fallen by more than 1% and pushed Britain into recession. A real recovery will need wage growth to create real growth. Otherwise a debt inspired recovery could see interest rates start to rise, leading to costlier interest payments on the debt held by consumers, leading to more defaults and another market crash.

A worrying trend is that of the zero hour contracts, where companies do not have to stipulate what hours an employee is working each week. Additionally, they don’t have to provide the employment benefits that full time employees receive like sick pay and maternity leave. Regulation is lighter in such work places and offers no real job protection, leaving the employees less likely to spend freely if they don’t have a consistent salary or job. This can only harm the economy’s recovery at a fragile time.

Yet there are some positives. Unemployment has stayed relatively low in the UK since the recession because of the countries flexible labour market. Instead of industry wide lay-offs, companies were able to lower salaries to keep people employed. This was healthy, as employees on low wages were better than the unemployed claiming benefits. But with the economy now trying to recover, there is no longer that fear of a market crash to hold companies back from increasing wages.

Unemployment has remained steady and relatively low compared to the rest of Europe, when unemployment is more than double in Britain’s in countries like Greece and Spain. Found at

The problem is that while consumer have been able to borrow money freely, companies are finding it a much harder task, especially the smaller and medium sized firms that employ the majority of the population. Banks, the biggest lenders to businesses, are focusing on building up their capital for new regulations, meaning they are averse to lending money to companies that don’t have the size and market share to guarantee their loans. There is a lack of a genuine back up to the banks for smaller companies, in contrast to the bigger companies that can lend from the international markets for affordable rates. This is restricting both current companies struggling to grow and new ones trying to enter the market.


This affects the public, as investment improves productivity which tends to influence higher wages. Right now business investment is down by a third since the recession, productivity has declined despite more people being in work and real wages have therefore fallen. Astonishingly, the UK ranks 159th in the world for its investment to GDP ratio.

The solution is therefore to improve the market for lending to small and medium businesses. This is easier said than done. Banks are still a long way off from their pre-recession lending rates; especially with two of the biggest banks still part owned by the government. People are wary to see banks go back to that sort of lending anyway, with bankers lending recklessly and risking too much money. But a middle ground must be found to provide capital to the rest of the market. Different lenders must be found as well; in America banks share a much a lower percentage of the lending market than in the UK and Europe, one example of why America has outperformed both since the recession. One such example is peer-to-peer leaning, where the two largest providers in the USA lent over $1.7 billion in the last five years. One recent improvement has been the “Funding for Lending” scheme which gives incentives to banks to lend by offering money that can only be used to lend to businesses.

Britain is further ahead than the rest of Europe in solving this problem and is thinking outside the box to improve the economies main weakness. If lending can pick up and even better without having to rely solely on the biggest banks, then investment can pick up and wages could start to grow.

It’s not the recession but how the country recovers that will come to define Britain.

Joining the Club

At the end of this year, immigration restrictions within Europe are set to relax, spiking fears in Britain that a mass influx of poor immigrants will arrive from the likes of Romania and Bulgaria. Britain has form, with similar circumstances in 2004 leading to a flood of Polish Citizens arriving in the country, to the point where Polish is now the second most spoken language in the country. This situation has lead to a growth in the popularity of UKIP, who campaign on restricting immigration and leaving the EU. Semi-Success in a by-election in Eastleigh, while rather meaningless in the grand scheme of things, has proved both their popularity gain and the unrest of the public. But are these fears well founded?

UKIP take advantage of public discontent.

Unhelpfully, there isn’t really any respected statistics on how many immigrants are set to hit the shores of the UK, while the government underestimated the numbers in 2004 and are wary to make the same mistake twice (with up to 13,000 projected a year but over quarter of a million arriving after the first couple of years) . A general estimate is that immigration from Romania and Bulgaria could rise to 50,000 a year for the next few years.

But why choose Britain? The economy is spluttering along, the government is implementing tough austerity measures and the public already has a negative view of immigrants. In fact the government has been advertising this in the home nations, even going to the lengths of trashing Britain’s weather. Yet Britain remains an attractive location, with low unemployment when compared to the rest of Europe, a language spoke across the continent and a welfare system made famous by its generosity.

Unemployment figures as of April 2012. 

However if the public is expecting a repeat of 2004, they will be mistaken. The factors are different now. Britain was one of the fastest growing economies on the continent back then and importantly was one of the few large economies to fully open their borders at the time. Now Both Romanians and Bulgarians have a much wider choice in where they can travel, meaning the immigration figures should be split between the different countries. In fact, Germany in an economic sense is a lot more attractive; they have more impressive employment figures and a more stable society (whereas Britain has suffered from riots in recent history). Additionally, while their movement has been restricted, its hasn’t been completely stalled, so many Romanians for example have already emigrated, while countries like Spain had already allowed unrestricted immigration prior to this.

So while there will be an increase, it might not be as inflated as many are projecting. Either way, there will be more immigrants taking our jobs many will say. But that view is clearly wrong; many immigrants are either highly skilled and genuinely add something to the economy, or they are willing to do the low paid jobs many Britons would turn their nose up at e.g. picking vegetables.  In fact, while locals grumble about the polish “invasion”, a reputation has spread of polish immigrants being hard workers, a term that isn’t coined so easily with British workers.

But there are inevitably those that move into the country to take advantage of a welfare system that has seen benefits grow faster than average wage. This is the worst case scenario, with immigrants draining the system and sending money out of the country to families back home. But this is more rare than many think; labour participation is on average higher for immigrants than in the general population, while those that wished to move to Britain for such reasons could have already done so – the limitations have applied only to the labour market. In total, when comparing what immigrants have contributed with their costs since 2004 in the top eight European countries, immigrants have had positive effects on the country’s finances.

Welfare cuts are being implemented now to help tighten the budget.

If this wasn’t enough, the current government’s policies have not made the country very open or attractive to possible immigrants. The welfare state is being cut drastically; with benefit growth no longer being tied to inflation and a cap being introduced on entitlements to any family up to the average salary in the UK. While immigration in general is being clamped down on, with the government sticking to a target to reduce total immigration to fewer than 100,000 by 2015. David Cameron has gone about this by making it harder to obtain visas, which has unfairly fallen upon students, the sort of immigration that the country wants, young and skilled. But it has helped encourage an anti-immigration vibe in the public, where polls have shown a majority of the public wanting near zero immigration. Not that this would have an effect on immigrants from Europe anyway, unless the government was to radically defy EU law and start denying visas to such citizens.

Growth in student immigration has been a strength of Britain’s. 

So what will happen come the end of this year is still up to debate. The UK is no longer the only club in town and once you get in the locals aren’t very friendly. But then the minimum wage is fives that of Romania’s, which could be the equivalent of five more drinks…

The Economic Medals

With the Olympics coming to an end, I thought it would be in the spirit of the times to award some medals to countries based on their economic performances in 2012. With it only halfway through the year, some figures will be based on predictions for the year 2012. I will also only include modern economies, thereby discounting a lot of African countries that are heavily reliant on aid and countries in the middle east that still recovering from civil or foreign war. A trend of Asian economies succeeding goes right through the different departments, while a few countries can count multiple medals.

First up is the big one, GDP Growth – the annual increase in the market value of everything a country produces. In bronze position is Thailand with a predicted 6% growth this year, after recovering from their worst floods in nearly 70 years in 2011. Just ahead of them in silver position is India with 6.6% growth, as the country continues to expand its economy to keep up with a burgeoning population. A recent mass power cut however showed the insecurities in their infrastructure, which could possibly hurt future growth for the country. Out in front is China with 8.1% growth predicted for the year, as the country strives to surpass the USA in the record books as top dog.

1st China – 2nd India – 3rd Thailand

Graph showing China’s growth over the years. 

The next event is Unemployment, where the nations are competing on their ability to get people into work. After getting bronze in the last event, Thailand comfortably wins the gold here, with the percentage of the population unemployed at an extremely low rate of 0.9%. This is contested however with Thailand accused of not seasonally adjusting their numbers (as farmers are out of work for long periods). If that is proven correct then the current runner up, Singapore would be awarded gold, with unemployment at 2%. The government has achieved this by both having a very stringent benefits policy and by having a low population of just over 5 million. In the fight for the Bronze medal, Switzerland just beats off competition from Malaysia and Norway. With unemployment at 2.9%, Switzerland has done well by having strict visa rules which can be adjusted to help keep employment high.

1st Thailand – 2nd Singapore –  3rd Switzerland

Graph showing Thailand’s unemployment rate since 2010. 

The third event is the Current Account Balance as a percentage of GDP. This is the balance between Imports and Exports, with the best countries exporting more than they are importing, therefore having a current account surplus. After narrowly missing out on a medal in unemployment, Norway capture Bronze with a current account surplus of 14.1% of GDP. This is thanks to their vast Oil and Natural Gas resources, with global prices increasing in recent times. Ahead of them in second place is once again Singapore, who boasts a strong current account surplus of 17.9% of GDP. This is because Singapore contains the busiest port in the world, allowing the country to become a global trade hub. Taking Gold in this event is Saudi Arabia; whose enormous oil reserves (the largest exporter of oil in the world) has allowed it to build up a current account surplus of 22.7% of GDP.

1st Saudi Arabia – 2nd Singapore – 3rd Norway

Graph showing the current account balance of Saudi Arabia 

Following this is the National Budget Balancing event. In this the best countries are able to make money from tax revenues after taking away government expenditure, thereby producing a budget surplus. In Gold and Silver positions are Norway with a budget surplus of 14.3% of GDP and Saudi Arabia with a budget surplus of 11.1% of GDP. These two top the pile because of the same reason as their high current accounts, they have vast Oil and Natural Gas reserves. Unlike Singapore whose high current account came from their successful port, the exportation of raw materials has boosted Norway’s and Saudi Arabia’s budgets by observable amounts. In a far off bronze position is Chile, who government has worked well to possess a budget surplus of 1.5%. This is partly down to the efficient running of the country by the government but is also down to a rise in the copper prices, of which the Chilean economy is highly sensitive towards.

1st Norway – 2nd Saudi Arabia – 3rd Chile

Graph showing Norway’s superiority over the rest of Europe with its high budget surplus. 

Finally, to finish off the medal ceremony is the government’s 10 year bond yields. These are the interest rates that each government must pay to loan money on the international markets, where the lower the number is, the more secure international creditors believe you are. For example Spain is currently facing very high interest rates, while the likes of Greece are not even able to borrow money on the international markets (leaving them reliant of bail outs). In Bronze position, Japan is able to borrow very cheaply in the long run with interest rates at 0.81%. These figures are somewhat distorted though as the government puts pressure on Japanese banks to buy their bonds, helping to drive down the bond yield rates. In silver position, Hong Kong boasts an even cheaper rate of 0.74% on long term loans. With a AAA credit status and heavy links to China (where heavy capital controls restrict international investment) the city state has become very popular in the bond markets as a secure investment. But in Gold position and winner of the event is Switzerland with interest rates of 0.63% on long term bonds. Switzerland are treated to such low interest rates namely because of the euro crisis, as the countries surrounding Switzerland face the ever present danger of a euro collapse. Switzerland (not in the EU) is therefore seen as a safe haven in a sea of chaos called Europe.

1st Switzerland – 2nd Hong Kong – 3rd Japan

Table showing the worlds lowest bond yields on the 1st June 2012. Since then Hong Kong has overtaken Denmark and Japan into second place

100 Smart Ways to Invest Your Time When You’re Unemployed – Online College Courses

100 Smart Ways to Invest Your Time When You’re Unemployed – Online College Courses.


For those who are unfortunately unemployed right now, some tips on how to keep active.

Spain’s current problem with Youth Unemployment

Debt crisis…Bank bailouts… Country bailouts… even some confusing statistics about Government bonds. This is all we hear about when the Euro crisis is on the news, but the most important statistic is usually the least talked about: Unemployment. In Spain, this is their most troubling problem, with unemployment currently around 20%. But even more troubling is their youth unemployment statistics (Under 25 years old) which currently reads just under a whopping 50%.

That is nearly half of young people in Spain not working, which doesn’t inspire much faith in the Spanish government or education system (not much point in entering higher education if there isn’t a job at the end of the road). So what caused such astronomical unemployment figures?

One major cause was the housing bubble that existed in most western countries; this was exacerbated in Spain as they let their economy rely too heavily on tourism. Spain was pushed into building houses to host tourists to bring money into the country which in turn funded more holiday homes. A vicious cycle that relied heavily on tourists coming into their country, which promptly stopped once people realised it was a luxury they couldn’t afford. Some statistics to back this up, show that when the financial crisis hit, construction accounted for 13% of employment and 12% of GDP and that in the 10 years previous to this, both borrowing and prices for houses tripled. This had a big effect on youth unemployment, where previously construction was a reliable trade to enter into.

Another major cause is the strange labour laws that Spain had. Due to tight regulation it was hard to fire employees, which meant employers were less likely to hire them in the first place. Instead temporary workers are hired, where employees have to work with no strong security for their future. These temporary workers aren’t included in employment statistics, so it makes the numbers a bit inflated, but still shows a problem of a lack of long term stability in the labour market.  A few days ago new labour reforms were released and were met with fierce protests from the public and on the face of it you can see why: giving employers more power over firing workers doesn’t seem to be helping the market. But maybe this might lead to more organisations employing people, as they now have more assurances that they can be flexible in the future. One example is in Germany, where labour laws are more lax and organisation were convinced to keep their staff on by lowering hours, this sort of co-operation was needed in Spain.

Youth unemployment can lead to some very negative impacts. One such impact is emigration, as young people looking for jobs feel they have better opportunities in other countries. This seems to be happening in Spain, where young potential employees are moving to the UK, Germany, France or even the USA. These countries don’t have particularly better employment rates, but it shows the complete lack of faith in Spain’s market. Another impact is that young people can become disillusioned with their surroundings and resort to crime; recent riots in the UK started in areas where unemployment was badly low and young Britons no longer had faith in the government to help them.

Spain aren’t alone, along with Greece they lead Southern Europe in poor employment prospects: Portugal currently have unemployment at just under 15%, Greece are just behind Spain with 18% while Italy are faring the best with around 8%. Check out the youth unemployment statistics and the southern states look even worse: Greece show nearly 50% as well, while Italy and Portugal are near the 30% mark. Their counterparts in central and northern Europe dealt with unemployment much better (excluding Ireland), with Germany using exports to keep their people in employment and the UK lucking out as there stricter construction laws meant the housing bubble didn’t quite have the same effect on employment as in Spain. So is there a lesson to be learned? From Britain no, low production and growth mean that unemployment is again rising.  But from Germany yes, high exports have kept people in employment and good relations between the government and organisations meant that employees weren’t sacked when times were at their worst.

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