Abstract
The firm downward trend in unemployment has been one of the most surprising aspects of the UK recovery to date. Unemployment has fallen at a much earlier stage of recovery than it did in the 1980s, despite the fact that measured growth has been fairly modest to date. More favourable demographic trends have contributed to this decline, as has early retirement and an expansion of higher education. It is also possible that growth is being understated. However, the decline in unemployment has also led to the suggestion that the UK labour market has become more flexible. In this Forecast Release, we examine this claim. We identify a number of ways in which both the demand for and the supply of labour have become more flexible. But in one crucial respect ‐ real wage flexibility ‐ the evidence is less persuasive. That should not prevent unemployment falling in the short term. But it could limit the extent to which a substantial further fall in unemployment could he sustained without inflation re‐emerging.
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