In my column in Economic Review, Vol. 27, No. 2, I looked at the behaviour of aggregate output during the three major recessions of the UK economy since the 1970s. In this column, we look in greater detail at the behaviour of unemployment. We begin by discussing long-term trends in unemployment using a century of data and then, using more recent data, move on to discuss the extent to which changes in unemployment have been caused by the business cycle.
Figure 1 shows the behaviour of unemployment over the last 100 years. It is clear from this graph that there is no long-run trend in its percentage rate. The average rate of unemployment during this period was 5.4%. Although there have been sustained periods which unemployment has risen above this level, in longer term it has eventually fallen back. The two periods in which unemployment has risen noticeably are:
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