The Government thinks it can achieve full employment. Wrong. Mass unemployment is an unavoidable fact of life
How many people are out of work? This week’s (18/12/09) official figures put the number of unemployed at 2.49 million: 7.9 per cent of the workforce. This is less than half the story. The government figures also showed that there are around half a million people working part-time who would prefer a full-time job, and that there are 2.26 million people who are economically inactive (home-makers, the unwell and students) who would like a job.
Add these three groups together, and there are 5.76 million people who would like to work more; about 15 per cent of the working-age population. You can quibble over how many of these are seriously looking for work; they are called “economically inactive” for a reason. But even so, the figures suggest we have truly mass unemployment.
If you think this shows the scale of the recession, you’re wrong. Even at its low point in the autumn of 2004, unemployment on this measure stood at four million. The move from boom to slump accounts for less than a third of today’s unemployment.
Nor are immigrants to blame. Back in 1996, before anyone had heard of the Polish plumber, unemployment on this measure was at more than 5.4 million. Few serious economists believe migrants add to aggregate unemployment. A study by the economist David Blanchflower has found that immigration from Eastern Europe “appears to have had little or no effect on the unemployment rate.” Indeed, in the good times, jobs for migrants increased alongside jobs for natives. Between 2003 and 2008, the number of foreign-born people working in the UK rose by 1.13 million, and the number of UK-born people in work by 1.16 million.
Nor can we blame much of this unemployment on the Government’s regulation of the job market. In the US, where the labour market is less regulated, the unemployment rate, on a measure similar to mine, is 17.2 per cent. Even at its low-point in 2000, it barely dipped below 7 per cent. And these figures exclude the 2.3 million people in prison.
These figures suggest a bleaker story: that the unemployed, like the poor, are always with us. In boom or slump, in regulated or less regulated markets, there is usually a large number out of work. Take the high point of Victorian capitalism, before trade unions and the welfare state, and when the free market ruled as much as it ever would. Between 1860 and 1890, unemployment, on a measure comparable to today’s 7.9 per cent rate, averaged 4.4 per cent of the workforce, and occasionally, as in 1879 and 1886, topped 10 per cent.
But what about the Fifties and Sixties? Wasn’t there full employment then? On a superficial reading of the statistics, yes. Unemployment averaged less than 2 per cent in those decades. But there was a massive amount of hidden unemployment then. Many women stayed at home; in 1955, less than 46 per cent of women of working age were in the labour market, compared with almost three quarters today. But many of these desperate housewives wanted to work; we know this because when opportunities to do so emerged in the late Sixties and Seventies, women took them.
Mass unemployment, then, is the norm. And this is true for pretty much any economy. So why is unemployment ubiquitous? This is like asking why many people will be lonely this Christmas. The labour market is like the dating market. Sometimes, people are out of work because they have unrealistically high expectations. Just as a girl stays single because she’s waiting for Mr Right, so people stay unemployed as they wait for the right job. At other times, there’s a mismatch between supply and demand. If you’re looking for a partner who is educated, cultured and sensitive, you’ll stay single if you’re looking in Dagenham. Ditto, if you confine your job search to the car industry in Birmingham.
In other cases, there is a signalling problem. Even if you find Mr Right, it can be hard to show him that you are Miss Right. Similarly, there is a big gap between finding the right job and showing that you’re the right candidate. And in other instances, there is just a lack of knowledge of opportunities. Some people are unemployed for the same reason that Carol Vorderman hasn’t snapped up your correspondent: they haven’t yet found out where the right match is.
Moreover, some lack the skills to get work. The New Policy Institute says that a young person without qualifications is four times as likely to be out of work as one with a degree. It was for this reason that Tony Blair claimed his Government’s priorities would be “education, education, education”: this, more than mere macroeconomic policies, was the road to fuller employment.
There is, however, at least one problem with this policy; it’s terribly expensive. Yes, school results have improved: the proportion of pupils getting five or more GCSEs at grades A*-C has risen from 45.1 per cent to 69.8 per cent since 1997. But this is merely because the Government has thrown more money at schools. A recent Office for National Statistics report on education spending since 1996 showed that each pound spent isn’t working any harder. With spending set to be squeezed, and diminishing returns likely to set in (because further improvements in results require educating the least educable pupils) we shouldn’t expect education to fix unemployment.
History and common sense, then, suggests that high unemployment is, if not inevitable, then at least normal. Which makes a White Paper issued this week by the Department for Work and Pensions all the more remarkable. It affirms an “ambition for full employment”, defined as having eight out of ten people of working age in employment (the current rate is 72.5 per cent). This would require an extra 2.9 million people to find work, on top of any population growth. The DWP says that such a rate “has not been seen before in the UK and is not seen in any of the other major developed countries”. What happened to evidence-based policy-making?
Taken from Times Online