Until recently William Sherwood's future appeared rosy in Margaret Thatcher's Britain. He had been working steadily for a construction company for eight years, had just bought a second-hand car for cash and had been given the chance to buy his family's rented Victorian row house here for half its market price.

But now Sherwood, 30, who is married and has three children, has been laid off, joining 2.5 million other Britons out of work in the country's worst recession since the depression of the 1930s. Last week unemployment in Britain hit 10.4 percent, the highest since World War II.

In particularly hard hit Liverpool Sherwood is just one of 2,500 unskilled workers competing for each rare job opening listed at local unemployment offices, which he has been haunting without success.

"I didn't think it was this bad. There are just no jobs here," said Sherwood who had expected to find new employment quickly. "You read in the newspapers about how the recession is affecting everyone, but you don't think about it until you're out of work yourself."

Once industrial England's gateway to the world and its third largest industrial center today, the brawny Victorian port of Liverpool is dying. Its population has fallen to 500,000 from 800,000 in the early 1960s -- when the docks were still busy, the auto plants were booming and the Beatles were making the mean red brick streets around the docks on the Mersey world-famous and briefly fashionable.

Despite the pluck of Liverpudlians determined to save the colorful city that has given Britain a disproportionate share of its poets, playwrights, actors, comedians and musicians, Liverpool has become a symbol of the accelerating decline of once robust industrial regions in Britain and other northern industrialized democracies.

The steady loss of jobs in their traditional manufacturing industries to rising industrial powers in the Third World has been exacerbated by the current global recession, which has made stagflation, economic dislocation and unemployment a seriously worrying problem even in recently booming countries like West Germany, France and Japan.

Britain, which led the world into the industrial revolution, is now suffering most from this de-industrialization -- a process being speeded by Thatcher's survival-of-the-fittest economic policies after decades of expensive, government-subsidized resistance.

Unemployment in Britian has doubled since Thatcher become prime minister two years ago and continues to rise rapidly. More than 10 percent of the work force is jobless, according to government statistics that are believed to significantly understate the problem. Hundreds of thousands of people not counted in the figures have been reduced to part-time work or are enrolled in temporary training or make-work programs at government expense.

This level of enforced idleness had been considered unimaginable in Britain's postwar welfare state, in which governments of both the left and right were committed to full employment and the number of jobless averaged less than 2 percent of the work force from the late 1940s until the late 1960s.

But since then the unemployment rolls have grown steadily as jobs disappeared in shipbuilding, steel making, mining, auto, textiles and other dying industries largely concentrated in declining regions and cities like Liverpool in northern England, Scotland, Wales and Northern Ireland. One of every nine jobs in manufacturing has disappeared since Thatcher took office as her policies and the deep recession force a dramatic and painful reconstruction of the British economy.

In Liverpool, the officially counted jobless now exceed 16 percent of the work force in the metropolitan area and more than 30 percent in many inner-city neighborhoods.

"It's virtually impossible to get a job in Liverpool, and I've tried everything," said John Manning, a job seeker at the central unemployment office who has been out of work for two years now. "I started out thinking I'd get another job quickly. I've gotten depressed and apathetic. I feel like a parasite, even in my own family."

Manning, 28, is back in his parents' home, where a younger brother is in a government job creation program tearing down dilapidated public housing for "slave labor" wages. Their father, a Liverpool docker, is working part time. Manning has had to postpone indefinitely his marriage to a department store floor manager, becuse "she's waiting for me to get a job. She wants me to have s stable outlook."

"They always used to say in Liverpool that if you can't get a job you should go away to the sea," added Manning. "That was your last resort. Now even that has disappeared."

The number of registered longshoremen in Liverpool has shrunk from nearly 20,000 in 1960 to less than 5,000 today, the number of seamen from over 13,000 to less than 4,000, and those employed in ship repairing from several thousand to 50. The decline of the port, leaving nearly 900 acres of Merseyside docks derelict south of the few new wharfs for containerized shipping, also killed supporting trades and crafts like ships' chandlers, varnish makers and rope makers.

Now, Liverpool also is losing many of the big factories moved here by past British governments to replace the dying docks. British Leyland, Dunlop, Bowaters, Lucas, Massey Ferguson and Meccanno have closed factories here during the past two years, eliminating a third of the 30,000 jobs that have disappeared in the area since Thatcher took office.

A job-creating campaign has attracted 5,000 new jobs to the Liverpool area during the past few years, but Glyn Jones, the campaign's representative in London, admitted, "We realize this is like a drop in the ocean."

Thatcher has said repeatedly that, despite the human cost, many of the factory closings are necessary if Britain is to reduce wasteful overmanning and weed out uncompetitive industries. New growth, her economic advisers argue, will have to come in new industries, such as offshoots of Britian's booming North Sea oil production, and regions relatively unencumbered by restrictive union practices and largely unskilled work forces.

They also believe that Britons are now better cushioned from the hardships of bankruptcy and unemployment than during the depression of the 1930s because of government training, job creation and regional indsutrial development programs, substantial unemployment and welfare benefits, and generous severance payments, which are required and partially subsidized by the government.

The severance payments to many British workers, particularly in industries with strong unions like steel and auto making, are ao large -- equivalent to six months to a year or more in salary -- that Thatcher and her advisers optimistically expect the the unemployed workers to invest in new shops and small businesses to replace lost jobs. While not as generous as elsewhere in Western Europe, unemployment and welfare benefits, including rebates on already low rents in widespread public housing, can make up for a much as three-fourths of some families' lost income during at least the first year of joblessness.

But Thatcher's government is reducing jobless benefits and their duration at a time when it is taking increasingly longer for people out of work and on the dole to find new jobs.

Sherwood doesn't think much of Thatcher's exhortations to jobless workers to leave places like Liverpool.

"I look at the newspapers and see the situation is not much better anywhere else," he said. "And housing costs a lot more, if you can get it at all, in places like London where there are some jobs.

"I don't want to move from this area, but I've said I'll go anywhere in the country where they can find me a job. It's that bad."

He and other job seekers interviewed in Liverpool also are skeptical about government training and job creation programs that have so far kept several hundred thousand additional Britons at least temporarily off the unemployment rolls. Thatcher has pointed to an expansion of these programs as evidence of her government's concern about the plight of the jobless.

But Kenneth Smith, who had come to Liverpool from neighboring northern Wales, where there are even fewer available jobs, said "those schemes are looking even worse." Because he can find nothing else at age 24 and married for six months, Smith hopes to enter a year-long computer training program even though he does not expect it to provide sufficient training to land a job in private business. But he will get a weekly pay check of just over $50.

A tour of facilities in Liverpool for the largest of these schemes, the Youth Opportunities Program for unemployed secondary school graduates and dropouts, provided evidence that its principal purpose is to keep the burgeoning number of jobless teenagers and young adults from being completely idle and broke. They can remain in the program for up a year.

These young people, a great many unskilled and uneducated after the age of 16 because of gaps in Britain's education, vocational training and apprenticeship systems, are the biggest worry for British and foreign observers looking closely at the rapidly worsening unemployment problem.

With so many school leavers unable to find work in Britain, noted the former U.S. ambassador, Kingman Brewster, "There is the danger that there will be an urban generation that has never worked and could fall prey to real extremism of the very far left or the very far right."

But the even higher rate of unemployment among young blacks and Asians, offspring of immigrants attracted here from the West Indies and India and Pakistan after World War II by the promise of plentiful jobs, is believed to be one of the causes of violent riots against the police in non-white neighborhoods in south and west London and the western city of Bristol during that past two years.

Even after the expected bottoming out of britain's very deep recession later this year, most analysts and Thatcher's economic advisers forecast that umemployment will remain quite high and even continue climbing for some time.

Right-wing economists who support Thatcher's strategy for trying to resstructure the economy now argue that Britain will have to accustom itself, as the United States has, to a "natural rate" of unemployment of perhaps 5 percent or more if the government is to avoid subsidizing unneeded and uneconomical jobs in the future.

This would leave Britain with the "two nations" -- prosperity in the south and the northeast near where the north Sea oil is landed but unemployment and despair in northern England, Northern Ireland, Scotland and Wales -- that the postwar welfare state under both Labor and Conservative governments tried to end. Added to that split would be new divisions between mature and young, black and white, and men women in the competition for scarce jobs.

In a recent issue of the scholarly British periodical Political Quarterly, devoted entirely to the country's unemployment problem, social scientist Jeremy Seabrook warned of a "terminal sense of the extinction of work itself" stalking working-class cities like Liverpool.

"Something elusive and despairing pervades those towns and cities which were built only for the sake of their purposes in the old industrial processes," Seabrook noted after close personal observation. "It is as though the working class were being wounded in its very reason for existence, work itself."