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British labour market – bad and getting worse

The angst in Britain about the form of the funeral for the Witch goes on. I liked the suggestion of filmmaker Ken Loach who suggested the whole affair be privatised and outsourced with competitive tenders determining the outcome. Hypocrisy rules though and the Conservative government will spend a pretty penny on the effort as a means of presenting her legacy in some good light. They won’t succeed because people know! With the latest British labour force data due out tomorrow, I was interested to read an interesting forensic study of recent labour market trends in Britain. The official line from the Government is that things are improving and “see, our policies are allowing those who want to work hard to achieve their aspirations”. The paper, which I discuss in this blog, tells us that those narratives are not even remotely true. Despite the official summary labour force statistics, once one digs more deeply into the data the trends are bad and getting worse.

In all the to-ing and froing last week in Britain, I was especially heartened to see the speech from Labour MP Glenda Jackson. She said it how it was. Where were her gutless fellow Labour colleagues – who seemed to scared to say anything about Margaret Thatcher – perhaps out of (a false sense of) politeness or perhaps because they know that in many ways they have become like her. They have incorporated her policy narratives into the core of their party.

But go Glenda! “The most heinous social, economic and spiritual damage upon this country …”

And while we are warming up I thought this reminder from 1981 = the year of the riots in 35 cities across Britain – The Specials – Ghost Town – would be good.

Sing along and get angry (Source):

This town, is coming like a ghost town
All the clubs have been closed down
This place, is coming like a ghost town
Bands won’t play no more
too much fighting on the dance floor

Do you remember the good old days before the ghost town?
We danced and sang, and the music played in a de boomtown

This town, is coming like a ghost town
Why must the youth fight against themselves?
Government leaving the youth on the shelf
This place, is coming like a ghost town
No job to be found in this country
Can’t go on no more
The people getting angry

This town, is coming like a ghost town
This town, is coming like a ghost town
This town, is coming like a ghost town
This town, is coming like a ghost town

A regular refrain from the British Prime Minister David Cameron, is that the Conservatives are all about aspiration, incentives, so that the British people who want to work hard and improve their circumstances, can.

Conversely, those that seek to “sponge” of society will be tracked down with all the available technology and punished for their “sloth”. He was in over-drive in the last few weeks about this after George Osborne turned the Phillpot tragedy into a all-out attack on those who rely on income support. The message is that there are jobs for all if you want to get off your tail and get off the dole.

It is ironic that this discussion flared up just as the person who introduced this style of narrative into British society died (and good riddance to her).

For example, in his speech to the National Conservative Convention on March 16, 2013, Cameron could have been channelling the Witch when he said:

This is what Conservatives do.

We make Britain stand tall and proud again.

And for us, this global race is not just about GDP.

It’s about saying to the mum who’s worried about her children’s future…

… we are building a country where there is a future …

… so your kids won’t have to get on a plane to get on in life, they can make it right here in Britain.

It’s what this party’s always been about – aspiration.

Helping those who really do want to work hard; and get on; and make a better life for their family.

Apart from the fact that many of those in need will never be able to afford an airfare to get away from Britain, even if they wanted to, the claim that there are opportunities in abundance for aspiring hard workers is a myth.

An interesting new study by David Bell and David Blanchflower – Underemployment in the UK Revisited – provides an insight into what lies beyond the rather static unemployment rate in Britain at present.

The British government has been claiming that their policies are not damaging the prospects for British people and have used the fact that the unemployment rate has not risen in recent months as evidence that the economy is on the turn – for the better.

For example, on February 20, 2013, the Secretary of State for Work and Pensions, a.k.a. IDS put out a press release – Employment levels at record high – which extolled the virtues of his government’s policy stance.

This was in the context of the December-quarter 2012 employment data, which recorded a significant rise in employment.

IDS said:

The UK is now ahead of many its international rivals when it comes to cutting unemployment and creating jobs which is so important as we compete in a global race.

This message – that “employment is at record highs” is consistently transmitted by various British government politicians as a means of deceiving people into thinking that times are not as bad as they feel and that the policy regime is on the cusp of delivering renewed prosperity to Britain.

Before we consider the Bell and Blanchflower paper, some simple fact checks are in order.

It is true that employment is at all-time highs. But then, so is the working age population (that is all those aged 16 and over). If we analyse the changes since the Conservatives took office in May 2010 the figures are not all that flattering.

1. The change in the working age population equals 946,000.
2. The change in the labour force equals 802,000.
3. The change in employment equals 757,000.
4. The rise in unemployment equals 45,000.

In that period, the employment-population ratio has barely changed (a slight increase). In other words, the higher employment reflects a larger population rather than any significant improvement in the labour market.

The following graph shows the employment-population ratio for Britain from 1971. The – British Office of National Statistics – refer to this as the “headline employment rate” and define it as “the number of people aged 16 to 64 in employment divided by the population aged 16 to 64”.

Prior to the crisis, in the last year’s of the Labour government the ratio peaked at 72.9 per cent. It is now down at 71.1 per cent, which might not seem to be much of a fall (scales on graphs can deceive).

What does that mean in jobs? Without regard to the quality of the employment, the dip in the employment-population ratio of 1.8 per cent amounts to 913 thousand jobs that have disappeared since the current Government took office. That is a massive loss to the British economy.

The focus then shifts onto the quality of the employment being created in Britain, and since here that the work of Bell and Blanchflower is important.

The paper by Bell and Blanchflower demonstrates that the Conservative narrative is misleading and, in fact, the current policy regime is creating a vast pool of underutilised workers who are struggling with ongoing real wage cuts and diminishing opportunities to work the hours they desire.

Bell and Blanchflower ask readers not to quote from the paper because it is due for publication in the coming week.

Respecting that, I will summarise their argument in my own words but the insights come from their forensic examination of the ONS data.

Bell and Blanchflower have produced a new “underemployment index”, which attempts to quantify the employment gap in Britain in terms of the extra hours that part-time workers and the unemployed would work if they were not constrained by a shortage of hours offered.

Like elsewhere, Britain is now experiencing a significant increase in underemployment. In Australia, for example, underemployment shot up during the 1991 recession and is now higher than unemployment. Taken together, Australia endures a broader labour underutilisation rate of 12.8 per cent and that is not including the hidden unemployed and other marginal workers.

This is now a problem in all advanced nations but has been largely confined to the Anglo-speaking nations up until the recent recession.

Remember, that to be classified as employed a worker only needs to work one hour per week in the survey period.

All of the indicators of underemployment in Britain have risen since the crisis began. The overall underemployment rate has risen from 6.8 per cent in 2007 to 10.5 per cent in 2012, and further increases will continue to occur.

Underemployed workers are currently employed by desire more hours of work in their current job, or in an extra job, or who desire a new job overall which offers more hours per week.

It is also a fact that, while the official unemployment rate in Britain is 7.8 per cent for the three month period, November to January the most recent data shows that the January figure alone is 8.1 per cent.

As Bell and Blanchflower point out, the November to January average provides little information of the direction that the labour market is moving in.

For example, the unemployment rate in November 2012 was 7.5 per cent. By December 2012 it had risen to 7.8 per cent. And as noted above it was 8.1 per cent in January 2013. The 7.8 per cent is the average of those three months.

Any reasonable assessment is that both the average and the monthly figure in the coming months will rise.

The specific contribution by Bell and Blanchflower in the paper cited, is that they introduce an underemployment index in “hours space” rather than in terms of persons.

This allows them to introduce information about the distribution of the extra hours desired by unemployed workers. Using persons-based measures one is either underemployed or not depending on how they fit the defining criteria.

Hours-based measures provide a much more accurate indicator of the extent to which the economy is failing to provide sufficient hours of work to make the preferences of the available labour force.

Some years ago (in 2000), I introduced a similar measure into the Australian debate – in the form of the – CofFEE Labour Market Indicators.

You can read the first working paper that we published in 2000 – Beyond the unemployment rate – labour underutilisation and underemployment in Australia and the USA – which outlined the methodology I developed if you are interested.

Please note we continue to produce this series but haven’t made the data publicly available for some time although that will change in the coming months. We are experimenting with an improved estimation methodology

Bell and Blanchflower express the unemployment rate into an hours measure, using average hours worked as the relevant conversion factor.

They then take into account the distribution of extra hours desired by the underemployed and combine this information with the unemployment hours measure.
I will leave it to you to examine the detail if you are interested.

The following graph is taken from their Figure 7, which shows the underemployment index and the official unemployment rate from 2001 to 2012.

It is clear that the two series tracked each other closely up until the onset of the crisis.
After that time, the deficiency in hours (indexed) has grown significantly faster than is indicated by the movements in the official unemployment rate in Britain.

Bell and Blanchflower note that prior to the crisis in the net underemployment was close to 0 because, while they were more workers wanting to reduce their hours then increase them, the workers that did want to add more hours offset the other cohort (in hours).

While the official unemployment rate has stabilised in recent years, Bell and Blanchflower argue that this does not provide “sufficient” evidence that the British labour market is improving.

Conversely, they argue that the rise in the underemployment index signals an increase in excess capacity in the UK economy.

Putting that into percentage terms, Bell and Blanchflower calculate that the broad labour underutilisation rate in Britain in 2012, would be 9.9 per cent, rather than 8 per cent as captured by the official unemployment rate.

That is a significantly different outlook.

The other point is that, while the official unemployment rate has been fairly steady, the broader measure of labour wastage has been rising over the period of tenure of the current government.

Bell and Blanchflower also confirm that the rise in underemployment reduces the well-being of the victims – not as much as the personal and social costs of unemployment – but the impacts are still considered to be “highly significant”.

Bell and Blanchflower also provide evidence to support the view that there has been significant decline in real wages in the UK since the end of 2007.

This point was picked up in recent UK Guardian article (April 15, 2013) – Underemployment can be as corrosive as unemployment – and it’s on the rise.

The UK Guardian brings into relief the:

… comparison with the spectre who has haunted Britain for the past week. Because while Thatcher consigned huge swaths of manufacturing workers to the scrapheap, she never oversaw the kind of general working immiseration hinted at in these figures. Like her, David Cameron promises that if you want to work hard and get on, you can, but now the figures are against him. This spells bad news for him in 2015.


The Conservative spivs all over the world are trying to camouflage the damage that the dysfunctional policy regimes are causing.

I was asked today during an ABC radio interview about the rapid rise in disability support pension recipients over the last few years what impact that had on how we measure labour wastage.

I pointed out that DSP numbers are highly cyclical and the anecdotal evidence is that the medical profession take pity on workers who have some affliction and no chance of finding work in a highly constrained labour market.

Governments tend to look the other way in downturns because they know that the unemployment rate would be much higher if these workers were forced to remain in the labour force.

The brutality of neo-liberal governments is revealed when the economy starts to grow again and these recipients are singled out as being malingerers.

The point I made in the interview that is relevant for the blog is that the public have little understanding of the data. It is a educational imperative, as a precondition for informed debate, that more understanding is achieved.

If the British people understood what lay below the single summary statistics that make headlines in each data release they may well take a different political position and expel dangerous neo-liberal governments.

That is enough for today!

(c) Copyright 2013 Bill Mitchell. All Rights Reserved

This Post Has 26 Comments

  1. Glenda Jackson’s portrayal of life in the UK is totally different from mine. Let’s first take her claim that “every single” shop doorway became living quarters for the homeless.

    I live in a medium size town in the North East of England – one of the poorer parts of the country. I have no recollection of ever seeing ANYONE either before Thatcher came to power, or during her reign or afterwards dossing down in a doorway in the town where I live. In contrast, you do see that sort of thing in about one in a hundred shop doorways in the larger cities.

    Re the school bookshelves being devoid of books, the college a hundred meters from where I live has always had thousands of books for the forty years I’ve frequented the place: and not held together by sellotape, as Glenda Jackson claims. (It’s a public sector, not a private college.)

    As to wall plaster in schools being held on by Sellotape, I’ve never seen that in the above college.

  2. I believe Jackson was referring to London at the above point in the video.

  3. Letter in Vancouver Sun, Canada, April 13, 2013

    Margaret Thatcher\’s economic legacy disputed

    Re: Thatcher inspired because she led from principle, Column, April 8

    Despite her noble intentions and principles, the legacies of Margaret Thatcher include a deregulated financial sector prone to criminality and instability, and giveaway privatizations that have made Britain the highest-priced economy in the world with an enormous financial and real estate overhead.

    The 99 per cent in Britain may be experiencing higher prices, a higher poverty rate and greater unemployment, but at least all can agree that Thatcher broke the unions and improved the quality of life for the rest of the population.

    Larry Kazdan Vancouver
    © Copyright (c) The Vancouver Sun

  4. I thought you might be a Ghost Town fan.

    One thing I did note from the paper cited is that it only addresses underemployment amongst those already engaged.

    There are still another 2.4 million people in the category ‘inactive – wants a job’, which I equate to about 84 million hours of output wasted per week.

    So in total the UK is throwing away ~190 million hours of potential output per week, through unemployment, underemployment and involuntary inactivity – and for no good reason I can see.

  5. My regret is that I never heard anyone in the US Congress with the gall to stand up and speak out about Ronald Reagan when died.

  6. During the damaging period of Thatcher’s time in office, I felt that the appropriate requiem for Thatcher’s programs was Albinoni’s Adagio for Organ and Strings (von Karajan and Berlin Phil., the version where the underlying tempo is funereal — I know he was a member of the Hitler Jugend and I spent hours agitating about this: should I, shouldn’t I; perhaps I am deluding myself, but in the end, I, and a couple of friends in the same situation, decided that he was more of a narcissistic opportunist than a Nazi).

  7. @Neil Wilson

    Isn’t your category covered by their OLF, out of the labour force?

  8. Addendum:
    Apologies. The timing of this rendition is just under 12 minutes. If it is any shorter, the theme can seem to be too uplifting. For film buffs, this was the theme for Gallipoli, where the British officers treated the Australians as less than human. As two German generals themselves said, the British army consisted of lions led by donkeys. Bringing this event to the fore does, I think, make Albinoni’s Adagio truly a Requiem for a Post-Thatcherite world. (Without taking anything away from Ghost Town.)

  9. larry,

    I can’t see it included in the indexing calculations. But that’s partly because the paper fails to specify the calculations precisely using the CDID references.

    Boy am I glad these guys don’t build bridges.

  10. @Ralph Musgrave

    In 1987 I went to live in Croyden because there were no jobs in my home town of Glasgow. I was unutterably shocked to see the large numbers of people living in doorways in London. As a friend of mine remarked: “this is not London, it is Calcutta”. I returned to Glasgow in 1989 when I managed to get a job there: and by then the same picture of beggars and folk living on the street was evident there too.

    I do not know where you lived: but Ms Jackson’s memory of that period fits exactly with my own experience.

    Mr Cameron says he makes British people “stand tall” etc. I only feel shame that I live in such a nasty and brutish country. It doesn’t have to be like this, despite what all the mainstream parties say. The worst part is that there are significant numbers of the electorate who are anxious and angry, and turn those feelings against their neighbours by villifying the poor who pay the price for their economic ideology. They think that it is necessary to have huge numbers out of work in order to achieve the “leaner, fitter economy” Thatcher promised: they could at least have a bit of respect and gratitude for the Omelas children who live the poverty they rely on for their means spirited smugness

  11. About underemployment- I’ve also wondered whether “time wasting employment” is an even larger consequence of inadequate aggregate demand. If everyone could afford whatever they wanted, then it would not be necessary to advertise to try and drum up custom. Everyone would be busy enough providing what people already wanted without needing to persuade them to buy stuff they didn’t want.
    When searching for something that Thatcher can be thanked for, I thought that she really can be credited with being the standard bearer of the “keep the UK out of the euro campaign” right from the inception of the euro as a concept.

  12. @Stone
    I would give her credit for that at least.

    But there is a certain section of the Anglo elite which benefit from a narrow form of currency sovereignty in the wider envoirnment of a surplus goods currency union.

    When the UK created its modern post war India it no longer had skin in the game of domestic productive economic affairs.
    You just produce your paper and like magic you get bountiful supplies of external goods.
    You can eliminate domestic workers in the primary & secondary industries at will.

    In that sense MMT is a branch of the neo -liberal Manchester free trade doctrine without final settlement.

    If it is used narrowly it just becomes a method to capture external mercantile forces.

    There is some pressure building in Ireland with the Anglo like establishment judges objecting to the capture of the state by a executive which is now a mere minor branch of a wider Euro Soviet.
    But of course their focus is too narrow in its framework.

    You get the impression these current forces want to save their hides by putting on nation state clothes.

    My judgement is that Italy is about to enter Greek like civilization collapse soon.
    This info is feeding into the wider elites circles.
    When countries become all extracted out like this – they can no longer provide surplus goods for Imperial powers.
    The Empire fades just a little bit more until it too implodes at some future point.

  13. PS
    Just remember – the EU is a mirror image of Thatchers & indeed Labours Britain.

    The people of the Shires which voted for her domestic capital destruction would never have got that “loads of money” as there would be no surplus to spend it on.
    Its a funny paradox but sadly true.

    When Europe falls so will the UK as they are both linked at the hip post 1957 – 1970.

    The UKs war strategy is to burn the south of Europe down with the help of its domestic banks which have been given letters of Marque.
    The remaining smaller surplus can then be shared by the North Sea powers.

    But it is a dangerous road.
    Cascade failure of interlocking systems could be behind any corner taken.

  14. @Dork of Cork, “You just produce your paper and like magic you get bountiful supplies of external goods.”

    That is exactly how Thatcherism “worked”. The UK became a piggy bank for global capital flows flowing in to ride asset price inflation, bidding up the price of pre-existing or entirely paper assets. We got real goods in return for rich foreigners getting account statements informing them that they were even richer.

  15. Bill, off topic but I just know how much you like Rogoff:

    “In a new paper, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst successfully replicate the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff and they were willing to share their data spreadhseet. This allowed Herndon et al. to see how how Reinhart and Rogoff’s data was constructed.

    They find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don’t get their controversial result.”

  16. “In 2010/11 median income fell from the 2009/10 peak of £23,173 to £22,590, the lowest it had been
    in 5 years. Household income per head also fell between 2009 and 2010. An important factor in the
    fall in household incomes was prices growth (inflation), which grew at a higher rate over most of the
    The 2010/11 data for median income is the most recent available. However, the more recent data for
    GDP per head and household income per head shows a contrasting picture. GDP per head fell by
    0.6% in 2012 while household disposable income per head saw an increase of 1.2%. This return to
    growth in household income per head in 2012 partially reflects the impact of lower inflation”

  17. “you must be pleased with Ed Balls proposing a kind of jobs guarantee.”

    Government subsidising a forced placement with large private sector firms for a small section of the population?

    I’m sure Tesco and Poundland are over the moon about having their wage costs slashed. Less so the smaller shops competing with them who don’t have the administrative and lobbying capacity to interface into government freebies.

    The only substantive difference between the ‘Future Jobs Fund’ and the current ‘Work Programme’ work placement system was that the former excluded the private sector. The get somebody from the FJF you have to be a social or public organisation – so as to avoid distorting the private sector labour and business market.

    The FJF is widely acknowledged to have worked, and the Work Programme has been a disaster. The only substantive difference has been the inclusion of the private sector.

    So of course Labour thrown that bit out and joined the legion ranks of the profit share subsidisers.

    Labour has demonstrated its stunning ability to generate spin over substance. It’s certainly easier to get power that way rather than advancing a convincing vision of a Better Britain.

  18. Neil says “I’m sure Tesco and Poundland are over the moon about having their wage costs slashed.”.

    The first flaw in that point is that there is plenty of evidence that employers (public an private) DO NOT fall over themselves to make use of employment subsidies, whether it’s JG or any other subsidy, and the reason is the hassle involved. That is, even if Tesco and Poundland do profit from JG employees, the profit is to a significant extent wiped out by the hassle and bureaucracy involved in employment subsidies. (Indeed, Neil refers quite rightly to the hassle.)

    Second, the statement that an employer’s “wages are slashed” thanks to an employment subsidy rather assumes that the subsidised employees REPLACE existing employees rather than being additional to those employees. But the WHOLE POINT of an employment subsidy is to bring about a NET INCREASE in numbers employed!!!!

    I.e. the $64k question here (to which very few people, Neil included, pay any attention) is: what are the reasons for thinking JG or any other subsidy brings a NET INCREASE in employment.

    You could of course argue that, assuming a subsidy really does bring an AGGREGATE INCREASE in numbers employed, and Tesco etc take on JG employees that the cost of the average employee for employers is reduced or “slashed”. But if cutting the costs of employment by X% brings a significant aggregate rise in employment and GDP, its thoroughly churlish to object to that.


  19. Ralph, QED? Come on. What demonstration? What do you mean by “net”, as opposed to “gross”, increase in employment in this context? I must be missing the $64k question as well, as I don’t see a problem here.

  20. Ralph.
    The ‘WHOLE POINT’ – is to increase worker ‘competitiveness’ by getting even more workers to work in low paying sectors and create more desperation and inter-class anger. the following link as an example of the insanity of the current UK job market

    If you believe they have any interest in a net increase in workers being a result of this then I dont think you are gaining enough real world experience lately.

    The JG is nothing like these schemes. You seem to have trouble seperating the pieces of pie from the increased pie size idea. JG creates new jobs, to WHATEVER LEVEL IS REQUIRED. This scheme does not.

  21. “You seem to have trouble separating the pieces of pie from the increased pie size idea.”

    They all do.

    There are two distinct parts to the puzzle. There is the initial creation of the job for which the transition wage is paid. And then there is the creation of jobs to support the multiplier expansion the spending of that wage induces, which with the Job Guarantee may then eliminate the initial job in the process. The Job elimination is a vital part of the process.

    It’s just a lot easier to manage that if those transition jobs are in a completely different field – with the labour deployed to develop the public good. There is then no possibility of ‘crowding out’ a fully paid private sector job, and the goods produced by the transition job labour are available for use and exploitation by all – not just some private operation that happens to have an effective bureaucracy interface.

    It’s a very simple argument. The state is paying for the labour. Therefore the state should have the benefit of the output of that labour and make it available to the members of the state (ie the rest of us).

    Just deploying the army of the unemployed (possibly managed by the Regular Army) to help fix the roads after this winter would be of great benefit to all of us. If here is anything to go by they have got into a shocking state.

  22. absolutely the point is to increase the size of the pie
    the government/ central bank can buy what it likes in its own currency
    but what is the public purpose?
    if roads need mending they need mending!
    whether there is surplus labour in the economy or not
    universal welfare (up to a maximum wage)
    can increase the size of the pie sufficiently for full voluntary employment
    and the government can pursue spending which juggles
    real stuff limits and perhaps limitless public purpose
    inflation fears can be addressed by starting the universal welfare at low levels
    but the point of a universal welfare scheme should be to provide income for basic needs
    and yes to change the whole failed motivation and power relationships
    inherent in the current workplace

  23. I left England 6 years ago for Australia (I grew up in Oz). Before I left I was living in Devon and working for a building supplies company. We were run off our feet supplying materials to equity rich homeowners who believed that they were rich because their houses had doubled in value in a few years. This is a big part of Thatchers legacy. The “home owning democracy”. After the great council housing sell off in the early 80’s, we all became slaves to our mortgages. We were fooled into believing that home ownership equaled financial security and that we were now all middle class. We were tricked into thinking that the future lay in share ownership and the services sector and that the decline in our manufacturing base would free us from the shackles of trade unionism and socialism forever. Our houses would increase in value faster than we could spend our equity release plans we would all retire on the Costa’s to enjoy a happy and wealthy retirement. My 75 year old dad (first class sheetmetal worker) now collects trolleys for 16 hours a week at the local Tesco because his pension pot doesn’t produce an income worth having. My mum died two years ago and spent her last two years in a care home funded by the 50% equity release of the family home. The whole point of all of this, is that Britains’ recession was started in 1979 with the destruction of its’ manufacturing powerbase and any growth spurts since 1979 can be attributed only to consumer led “booms” paid for with cheap credit and equity release from overvalued property. The pound is on the floor and yet Britain still can’t compete in the global marketplace. Everyone I used to work with in the UK is now on part time hours and earning near minimum wage which is topped up with benefits. Where will UK growth come from? I am not being smug from a safe distance by the way. Australia has its’ own problems and I expect we will will be in a similar situation as the UK is in a few short years.

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