Working for Full Employment

John Philpott

• Publisher: Routledge
• Year: 2005
• ISBN:
  9781134763382
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

After more than twenty years of mass unemployment in Britain and throughout much of Europe can the aspiration of "jobs for all" once again become a reality? Working for Full Employment considers the feasibility of full employment in a modern market economy.
The book is written by a group of experts who were pivotal in pushing full employment up the political agenda in the mid 1990's. They identify the hard choices which policy makers must face and discuss why full employment has been so elusive for the past twenty years. The authors examine:
* The effects of new technology and increased trade
* The increased participation of women in the labour market
* The impact of labour market regulation on employment
* Worksharing
* How welfare reform can help the long term unemployed into jobs
* The role of industrial policy
* Reform of pay bargaining
Well informed and accessible, this book is a valuable contribution to the developing debate on labour market policy.

1

LOOKING FORWARD TO FULL EMPLOYMENT

An overview

John Philpott

INTRODUCTION

Jobs are once again a serious item on the political agenda. In Britain as elsewhere, policy debate has been galvanized by the spread of unemployment—and feelings of job insecurity—beyond the traditionally affected blue-collar occupations to white-collar workers and those employed in managerial and professional grades. Conservative politicians who, like former Chancellor of the Exchequer Norman Lamont, might once have described unemployment as a ‘price well worth paying’ in the battle against inflation are now mindful of the fact that fear about jobs is evident throughout the Tory heartlands of ‘middle Britain’. Rather than down-play the unemployment issue in the mid-1990s, the British right has instead sought to talk up Britain's jobs record within the EU. Deregulated free market Britain has been described as the ‘enterprise centre of Europe’, while interventionist economic and social policies (for example, minimum wage legislation or adherence to the general principles set out in the Social Chapter of the Maastricht Treaty on European Union) have been condemned as ‘job destroyers’.

Politicians on the centre and left meanwhile have once again begun to talk of full employment as a policy goal, albeit often cautiously and with varying degrees of enthusiasm. While centre-left politicians agree that unemployment must be a policy priority, some are wary of promising too much while others—leastways in private—question whether the language of full employment is still appropriate in a modern technologically oriented free market economy. There are similar disagreements about the means of achieving full employment. Old style Keynesian solutions to unemployment—which emphasize the importance of expansionary macroeconomic policy—are still voiced but the views of so-called ‘modernizers’, who stress supply side reforms and the need to make individuals more employable, have recently been in the ascendant. Between these poles are those—sometimes referred to as ‘New Keynesians'—who seek a sophisticated accommodation between demand management and supply side measures designed to create a socially inclusive and cohesive ‘stakeholder economy’ able to sustain full employment without inflation whilst at the same time improving living standards for all citizens.

The subsequent chapters in this book will pick up different strands of the ongoing debate on unemployment and employment policy which provide the context for an understanding of the kinds of policies that will need to be introduced if Britain is once again to experience full employment. This introductory chapter provides a non-technical overview of the key underlying themes and policy issues.

Full employment and mass unemployment

According to Beveridge at the end of World War II, full employment would entail an unemployment rate of 3 per cent or less of the workforce in a ‘sellers market’ in which the number of job vacancies outstripped the number of jobless men (Beveridge 1944). Moreover, there should be no long-term unemployed. The margin of 3 per cent would ‘consist of a shifting body of short-term unemployed who could be maintained without hardship by unemployment insurance’.

Beveridge, in line with the HM Government 1944 Employment Policy White Paper's less precise aim of maintaining a ‘high and stable level of employment’, considered the prime responsibility for achieving this to rest with the state. The principal instrument would be demand management; as Keynes had shown, it was essential that the state should use the tools of financial policy to maintain an adequate level of demand for goods and services. Yet it would be wrong to conclude that this was considered all that was needed to achieve full employment.

The White Paper, for example, warned about the inflationary pressures that might be associated with the maintenance of a high and stable level of employment and contains extensive reference to what we would nowadays call ‘supply side’ measures as a way of mitigating them. Indeed, according to the late Professor James Meade—Nobel Laureate and a key contributor to the White Paper—Keynes was concerned that inflationary pressures might build up in the post-war economy if the unemployment rate were to fall much below 8 per cent of the workforce (Meade 1994). Beveridge was also aware that the task of achieving full employment was far from straightforward and extended beyond demand management. He concluded his preface to Full Employment in a Free Society as follows:

Unemployment cannot be conquered by a democracy until it is understood. Full productive employment in a free society is possible but it is not possible without taking pains. It cannot be won by waving a financial wand; it is a goal that can be reached only by conscious continuous organisation of all our productive resources under democratic control. To win full employment and keep it, we must will the end and must understand and will the means.

(Beveridge 1944:16)

As events turned out, Beveridge's optimism that the means and the will could be marshalled to fight unemployment was vindicated throughout much of the post-war era. Full employment without serious inflation was maintained in conditions of excess demand for a generation after the war, albeit as Andrew Britton points out (Chapter 2) this reflected a confluence of economic and social circumstances—not least a remarkable degree of restraint on the part of wage bargainers—as much as any skill on the part of policy-makers.

Unfortunately, matters have deteriorated during the past twenty years. The UK economy nowadays ‘overheats’ at well in excess of 3 per cent unemployment. Over the last business cycle the unemployment rate averaged 8 per cent—and long-term unemployment has re-emerged as a major social and economic problem (one in every three people currently unemployed have been without a job for at least a year). Although the lack of any upsurge in inflation as unemployment has fallen during the course of the 1990s economic recovery offers some hope that matters have improved more recently, few can be confident that the present recovery will on its own succeed where all those since the mid-1970s have failed and restore full employment as envisaged by Beveridge.

The cost of this failure is truly immense. Research shows that unemployment is a major source of unhappiness (Clark and Oswald 1994) and as David Piachaud outlines (Chapter 3) mass unemployment has bred poverty, damaged the health of individuals and whole communities and reduced social cohesion by fostering an emergent ‘underclass’. It has also threatened to undermine the welfare state—the very existence of which was originally predicated by Beveridge on the assumption of full employment. According to Piachaud the burden on the taxpayer of maintaining between two and three million people on the dole in 1994–95 amounted to £26 billion or £9,000 per unemployed person. Piachaud calculates that if unemployment were reduced to its average level in the 1970s, the Exchequer cost would fall by the equivalent of 10 pence on the basic rate of income tax.

This is of course a big if. Yet Piachaud is surely right to conclude that mass unemployment should not be passively accepted as a fait accompli. As he concludes, ‘Britain has a choice’. The initial task facing those who still aspire to full employment, however, is, as Andrew Britton also remarks in Chapter 2, to convince people in the 1990s that full employment is more than just a political slogan borrowed from the past—and to make clear the requirements and costs associated with a strategy to achieve it.

More than just a slogan?

If the opinion polls are to be believed most people in Britain today remain unconvinced that full employment can be achieved and many consider the objective a pipedream. This is unsurprising. One needs to be well over the age of majority to have any real memory of a time when finding a job was relatively easy. Nowadays few people feel fully secure in their employment and the common belief is that never again will there be sufficient jobs to go round, even during good times for the economy. In addition to pessimism, many are also confused by the language of full employment. It often conveys an impression of full-time male employees working flat out, which can seem outdated in the 1990s when women make up half the workforce and more people work part-time or are self-employed.

Jill Rubery (Chapter 4) is critical in particular of the ‘gender blindness’ evident in definitions of full employment and unemployment. Both Rubery and Patricia Hewitt (Chapter 5) agree that full employment must mean employment for both women and men. As Hewitt makes clear, however, while this will mean re-evaluating the assumptions surrounding Beveridge's historically specific definition of full employment, the definition in its broader numerical sense is still appropriate today. In other words, although the changed nature of the labour market in the 1990s has major implications for the policies society will have to adopt to achieve full employment—and means that a fully employed economy would look very different—the goal as set out by Beveridge remains valid.

If, for example, the demand for labour could once again be sustained at the level required to meet Beveridge's full employment target, modern day social preference—as mitigated by prevailing tax and benefit systems—would undoubtedly result in a very different pattern of employment (in terms of the mix of male and female and full-time and part-time workers, etc.) than that which prevailed under full employment in the post-war era. But we should not (as the growing number of ‘future of work’ gurus often do) confuse discussion of how society should respond to a changing pattern of employment with the issue of how to expand the volume of employment.

Common pessimism about the prospects for full employment would of course be justified if it were impossible to expand the volume of employment. If there were only a fixed amount of work to be done policy-makers would be virtually impotent in the face of, say, new technology or an increase in the number of people looking for jobs. At best all that could be hoped for would be to share the available work around. But in a world of mass desire, not to mention poverty and need, the belief that there can never again be jobs for all who seek them seems hard to sustain. The problem of mass unemployment instead lies in society's inability to maintain demand in the economy at a rate sufficient to absorb idle hands without stoking up inflation (and creating balance of payments problems). In order to translate full employment from a slogan into a set of practical propositions we must therefore—as Beveridge would certainly have appreciated—understand why so much unemployment is nowadays required to keep inflation in check.

‘Core unemployment’

The crux of the post-war remedy for unemployment was to dampen fluctuations in the economic cycle in order to ensure that there was no prolonged deficiency in demand of the kind experienced during the inter-war years. Since the mid-1970s, however, although unemployment still rises and falls broadly in line with fluctuations in demand and output, increasing emphasis has tended to be placed upon the ‘core’ of unemployment around which fluctuations in the cycle occur. This has been especially true in Britain and most of the countries of the European Union. The EU countries as a whole have experienced a trend increase in the core rate of unemployment to around 10 per cent of the workforce. In the USA, by contrast, unemployment has fluctuated around a core rate of 7 per cent—now considerably lower than the EU average, having generally been higher in the 1950s and 1960s—while Japan has maintained both a low core unemployment rate of roughly 2 per cent and also prevented significant fluctuations of unemployment (Table 1.1).

‘Core’ unemployment is a less loaded term than the more commonly used term ‘structural’ unemployment. For some, structural unemployment means a mismatch between the skills or location of jobless people and the skill requirements and location of job vacancies. For others, it implies inflexibility in institutional arrangements that make the labour market more ‘rigid’ or more prone to inflation at any given level of demand. In particular, the term often implies that only supply side measures are appropriate for dealing with the problem. In general, this is probably a valid implication. But some economists would argue that macroeconomic measures operating on the demand as well as the supply side of the economy would have a role to play in any strategy for full employment. It is preferable to have an open mind on all of these issues so we shall stick with core unemployment (as Andrew Britton remarks in Chapter 2, unemployment is not a simple problem with one explanation and one cure).

The initial onset of the rise in the core unemployment problem in Britain as elsewhere is generally felt to be associated with the various economic ‘shocks’ of the 1970s and early 1980s—notably the sharp oil price hikes—and over the longer term ‘strains’ caused by structural change which have led to job losses in traditional industries and in particular caused a reduction in the demand for unskilled workers.

Table 1.1 Standardized unemployment rates in major OECD countries, 1974, 1983, 1994

	1974 %	1983 %	1994 %
USA	5.5	7.4	6.0
Japan	1.4	2.7	2.9
Germany (West)	1.6	7.1	6.9
France	2.8	9.7	12.5
Italy	5.3	9.4	12.0
UK	2.9	11.7	9.6

Source: OECD

Some explanations of the rising core point to interactions between periodic bouts of deficient demand and a deterioration in the strength of the supply side of the economy. The loss of industrial capacity and skills, combined with the creation of a large group of long-term unemployed who are not easily reabsorbed into jobs even during periods of economic recovery, weakens an economy's capacity to reduce unemployment substantially without a resurgence of inflation.

A related, albeit even more fundamental issue for Britain, is raised by Christine Greenhalgh and Mary Gregory (Chapter 6). They point to ‘deindustrialization’ leading to substantial job losses in manufacturing as a major cause not only of unemployment in Britain but also of the nation's general economic difficulties. Greenhalgh and Gregory show that over the period 1960–90—and especially since 1979—Britain shed manufacturing jobs at a far faster rate than any of the G5 major industrial nations.

This outcome could of course be viewed as a sign of success because manufacturing productivity has risen sharply. Improved productivity should serve as a boost to domestic output and, by increasing competitiveness in world markets, also assist export-led growth. This can generate sufficient prosperity to underpin job creation in the service sector if not manufacturing itself. However, as Greenhalgh and Gregory show, Britain's deindustrialization has corresponded with a loss of market share in both domestic and export markets for manufactured goods, while growth in manufacturing output has been weaker than that of any other G5 nation.

The central issue here as far as core unemployment is concerned is not that jobs are being lost from manufacturing—this will tend to occur come what may because new technology is continually providing scope for improvements in productivity. The issue is rather that of the consequences of the apparent lack of competitiveness of Britain's manufacturing sector.

Poor manufacturing performance makes it more difficult for Britain to maintain a healthy balance of trade and limits the scope for generating a sustained reduction in unemployment. For one thing, policy-makers will be reluctant to boost demand for goods and services for fear that balance of payments problems might lead to downward pressure on the pound and—because this would result in higher import prices in the shops—upward pressure on inflation. Moreover, Greenhalgh and Gregory point out that manufacturing sustains a far higher proportion of jobs throughout the economy than is measured by its share in total employment because it makes substantial purchases from the service sector. A weak manufacturing sector is therefore likely to result in a lower overall level of employment.

New technology and ‘globalization’

A common explanation for the rise in core unemployment is an observed shift in the demand for labour favouring those with skills as against those with...

Table of contents

• Front Cover
• WORKING FOR FULL EMPLOYMENT
• Title Page
• Copyright
• Contents
• List of figures and tables
• List of contributors
• Foreword
• Preface and acknowledgements
• 1 LOOKING FORWARD TO FULL EMPLOYMENT: AN OVERVIEW
• 2 FULL EMPLOYMENT IN A MARKET ECONOMY
• 3 A PRICE WORTH PAYING? THE COSTS OF UNEMPLOYMENT
• 4 WHAT DO WOMEN WANT FROM FULL EMPLOYMENT?
• 5 FULL EMPLOYMENT FOR MEN AND WOMEN
• 6 WHY MANUFACTURING STILL MATTERS: WORKING WITH STRUCTURAL CHANGE
• 7 TECHNICAL CHANGE AND UNEMPLOYMENT
• 8 DOES GLOBALIZATION THREATEN LOW-SKILLED WESTERN WORKERS?
• 9 CAN ECONOMICS SOLVE THE PROBLEM OF UNEMPLOYMENT?
• 10 BUILDING FULL EMPLOYMENT WITHOUT LOW PAY
• 11 REGULATION VS DEREGULATION: WHICH ROUTE FOR EUROPE'S LABOUR MARKETS?
• 12 PREVENTING LONG-TERM UNEMPLOYMENT
• 13 FULL EMPLOYMENT: THE ROLE OF THE PUBLIC SECTOR
• 14 BARGAINING FOR FULL EMPLOYMENT
• Index