The number of people that have been without a job for more than 12 months has soared to its highest level since 1997, official figures have shown.
Long-term unemployment has jump by 47.5pc over the year to 787,000 in the three months to May, according to the Office for National Statistics. Older workers were the worst hit group, with more than half of over 50s out of work now classed as long-term unemployed, the figures revealed.
Millions of people are now working part time either because they can't find a full-time job, or because employers have cut the number of days they work, the statistics found.
Nigel Meager, director of the Institute for Employment Studies, said: "It is of serious concern that long-term unemployment has increased again to over three-quarters of a million. Urgent policy action is needed to support this group back into work to avoid the damaging long-term social impacts experienced in previous recessions."
The Age and Employment Network, which represents older workers, said long-term unemployment would "get worse before it gets better" as public sector employers began to cut jobs. Chris Ball, chief executive, said: "We fear that over-50s will bear the brunt of these cuts. Against the backdrop of Government proposals to phase out the default retirement age and bring forward the date at which the state pension age will rise, we need to make sure that staying in work is a viable option for older people."
The Government is currently consulting on when to make it illegal for employers to force someone to retire at 65, and whether to increase the state pension age to 66 far sooner than planned.
Total unemployment fell by 34,000 to 2.47m in the three months to May, the ONS figures showed. The claimant count fell in June by 20,800 to reach 1.46m, and employment increased by 160,000 over the quarter to reach 29m.
But this was largely due to an extra 148,000 people in part-time working over the quarter, reaching 7.82m, the highest since records began in 1992. Recruitment companies also said many people were forced to accept jobs for which they were overqualified.
The Chartered Institute of Personnel and Development warned the upturn in hiring was the "calm before the storm". John Philpott, chief economist, said: "A big public sector jobs squeeze already under way and the pace of economic recovery uncertain, things may look a lot less rosy by spring 2011 than they do at present."
Howard Archer, chief UK economist at IHS Global Insight, said: "Major job losses are on the way in the public sector as the government slashes spending, and we doubt that the private sector will be able to fully compensate for this."
Further evidence that the labour market remains fragile can be taken from "muted" pay increases, economists said. Regular pay grew by 1.8pc year-on-year.
Hetal Mehta, senior economic adviser at Ernst & Young, said: "The underlying weakness of the labour market is reflected in the subdued average earnings figures."