Whatever happened to full employment?

 
Workers in an office block

Full employment used to be a much-cherished political mantra. Why does it seem to have disappeared from public debate?

Today all politicians want to cut unemployment from its present high levels. But once upon a time the goal was full employment - a common political slogan in post-war Britain as society attempted to put behind it the horrors of the Great Depression.

Former US president Bill Clinton subscribed to a modern form of it when he said: "I do not believe we can repair the basic fabric of society until people who are willing to work have work."

But the very idea that the government should be able to create an economy in which everyone is able to get a job might already sound dated to some. This week the UK's unemployment figure rose to 2.57 million, a rate of 8.1%. It is lower than the US (9.1%), Greece (16.7%) and Spain (21.2%). But it is the highest it has been in the UK since 1994, with more than a fifth of those aged 16-24 without a job.

But has there ever been full employment? That depends, like a lot of economics, on one's definition of the term.

"Full employment never meant zero unemployment," says Christopher Pissarides, professor of economics at the London School of Economics.

Start Quote

As long as most people were in work it didn't matter if rather a lot of other people, albeit a minority, were not. So unemployment lost its profile as an issue”

End Quote Historian David Kynaston

Instead there is what the free market economist Milton Friedman termed a "natural rate" of unemployment, where nobody stays out of work for long, unemployment fluctuates between 5% and 6% with jobless workers quickly being hired in growth sectors of the economy.

Other economists argue this is too high. William Beveridge, the man who inspired Britain's post-war welfare state, said full employment meant a figure of under 3%.

Before the world became industrialised, nearly everyone outside the rich elite would have had to work to survive, usually in the fields. After industrialisation all that changed. Mechanisation offered people work in the factories but also brought huge spikes in employment and an intensification of economic boom and bust.

Pissarides argues that full employment was a reality in the US in the 1990s under Bill Clinton and from 1997-2007 in Britain, and in modern day China.

Other economists say it's not fair to compare democracies with autocratic societies. Children learn in history lessons about the mass mobilisation of men in Hitler's Germany for armaments production and public works programmes. "Conscripting people over the barrel of the gun in totalitarian societies is not full employment as economists understand the term," says economic historian Tim Leunig.

Workers on the shop floor at the Vauxhall Motors car factory in Luton, Bedfordshire, 1955 In 1955 unemployment was very low indeed

So has genuine full employment ever been achieved in the post industrial world? "Of course we've had it," says the economist Lord Skidelsky. "Between 1950 and 1973 unemployment averaged 2% and was always well under one million."

This was the golden age for jobs in Britain. The high point came in July 1955 - shortly after Anthony Eden had taken over from Winston Churchill as prime minister - when unemployment reached a post-war low of 215,800, a mere 1%.

So what happened to full employment? Ian Brinkley, director of think tank the Work Foundation, says the term went out of fashion in the 1970s as unemployment passed one million.

Then in the 1980s, Margaret Thatcher pursued a different approach, which economists characterised as the prioritising of tackling inflation. The concept of full employment was dead, says Brinkley.

Unemployment climbed above the symbolically important three million figure, and stayed relatively high despite economic recovery.

It was the election of Tony Blair in 1997 that saw renewed talk of full employment. "New Labour came in and adopted a modern version of full employment," Brinkley says. Blair and Chancellor Gordon Brown no longer sought a low percentage of unemployment. Instead they changed the definition to boosting the total number of jobs.

Unemployment figures

  • July 1955 - 215,800 (1%)
  • July 1965 - 309,800 (1.3%)
  • July 1975 - 1,193,000 (4.6%)
  • July 1985 - 3,139,000 (11.3%)
  • July 1995 - 2,439,000 (8.6%)
  • July 2005 - 1,423,000 (4.7%)
  • July 2011 - 2,566,000 (8.1%)

Source: ONS figures but first two are not comparable

Writing in his autobiography, A Journey, Blair claimed that by the time he stepped down there were "over 2.5m more in work". It was a cunning shifting of the goal posts, Brinkley says. With a rising population the party was almost guaranteed to boost the number of jobs in the economy.

Neither did it have to say who was getting the jobs. Campaign groups like Migration Watch argue that the majority of jobs created by Labour went to foreign workers, leaving the proportion of unemployed Britons little changed.

And then there was the issue of misleading figures. In 1998 the total on incapacity benefit was "1.7m and rising", Blair writes in his memoirs. The unemployment statistics "masked the huge rise in numbers on incapacity benefit that had taken place under the Tories and was continuing under us" he conceded.

Now unemployment is rising again there may be some politicians who under their breath admit it is no bad thing. In 1992, Conservative Chancellor Norman Lamont said: "Rising unemployment and the recession have been the price we have had to pay to get inflation down. That is a price well worth paying."

Some argue that it was the policy of the Thatcher government in the 1980s to use rising unemployment as a brake on inflation. The theory is that as people lose their jobs, the pressure for wage rises diminishes. But Conservative MP John Redwood, chairman of the party's policy review group on economic competitiveness, disputes that this was Thatcher's aim.

She was pursuing a "sensible" approach to control inflation so that the economy could recover and unemployment would fall in the longer term, he argues.

Conservative campaign poster This notable poster was used in the 1979 UK general election campaign

Pissarides says the problem with Thatcher was that rising unemployment was not a temporary situation but continued for many years.

But he agrees with the theory that some unemployment is better for an economy than none. "It is better to have 1% or 2% unemployment than zero because the smaller rates will give rise to labour shortages and cause inflation."

Others disagree. The late James Tobin, whose theories are said to be guiding President Obama's stimulus programme, believed that there was no such thing as an optimum level of unemployment.

"I did a paper where I analysed the optimal unemployment rate," the economist Joseph Stiglitz was quoted as saying in a Bloomberg article. "Tobin went livid over the idea. To him the optimal unemployment rate was zero."

Redwood agrees with Tobin's idea that full employment means getting everyone a job. "I'm not sure it's gone out of fashion. All three political parties have a high level aim of full employment."

Jarrow Crusade In the 1930s, unemployment soared

The problem is not the desire to bring in full employment but delivering it. Labour stopped talking about it because they had difficulty in achieving it, Redwood argues.

And David Cameron's government faces both the financial crisis and an "enormous economic challenge from the East". Redwood is pessimistic about whether it can be delivered in the near future. "Recently it's proved beyond the ability of most Western governments."

The historian David Kynaston says the issue is as much psychological as economic. He argues that there was a "psychic shift" towards accepting unemployment in the 1980s.

Up to the election of Margaret Thatcher, it was believed that any government that created mass unemployment would fall at the next election. Yet in 1983, despite taking unemployment to over three million, the Conservatives won with an increased majority.

The view of unemployment had changed forever. "As long as most people were in work it didn't matter if rather a lot of other people, albeit a minority, were not. So unemployment lost its profile as an issue."

And with unemployment once again nearing the three million mark, Cameron and Chancellor George Osborne will be focused on turning the tide of people losing their jobs.

To talk of full employment in this climate might be seen as having just a whiff of hubris about it.

 

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  • rate this
    -2

    Comment number 442.

    A couple of key facts not mentioned in the article: in 1955 relatively fewer women worked, and in the early Thatcher years the 60's baby boomers hit the labour market - and which were largely responsible for the huge increase in unemployment.

    I suspect excessive government debt is the principal root cause of high unemployment in recent times, but maybe the minimum wage has risen too much.

  • rate this
    +2

    Comment number 441.

    Neither Conservatives, nor Labour, nor Lib. Dem. have or had the answer. None of the main political parties have the solution. Don't wait until more fall into poverty. Start thinking about alternative political parties. The solution is in our hands. Vote the current lot (all of them) out next time around. We need politicians that are in touch with reality. No Blair, no Cameron...

  • rate this
    0

    Comment number 440.

    Debt and long term unemployment, like oil and water. Its broke, government knows it and has basically pulled in the feelers. We are on our own, and the rules are null and void. Every person for themselves. The hungry will storm the grain silos and acrid smoke and lead shall fill the air. Hold on tight, the future is a bumpy ride to come.

  • rate this
    +3

    Comment number 439.

    The free access for all, to credit cards. Not one, but many. The loss of the save up for mentality, has now gone. Replaced with borrow left right and centre, across all sectors of the UK. Must have today, regardless.
    And the firms crying today, have helped push this crisis, by offering store loans and finance. Then wonder why things go flat.
    The world is in an unhappy state. The party is over.

  • rate this
    +1

    Comment number 438.

    Full employment perhaps, but only for the few.

  • rate this
    +1

    Comment number 437.

    re: #436
    I would suggest the reason un-employment is high between 16-24 year olds is more due to the fact there are no jobs matching their skills/abilities... what they have spent 11,13 or 16 years in education for. The biggest increase to this figure would be graduates who are 21+ years of age who have no choice but to be un-employed. Also show me a cleaning job which has full-time hours???

  • rate this
    0

    Comment number 436.

    The reason why unemployment is so high in the age group 16 - 24 is because we have a generation of people (myself included) who have grown up in a society where we look down on menial tasks (such as cleaning toilets) and don't know the meaning of hard work - let alone appreciate it's value. Perhaps if society encouraged people to take pride in our work, maybe we wouldn't have such a problem.

  • rate this
    0

    Comment number 435.

    Those of you who have read the 'Utopia' type novels of the 1920s and 1930s will see that Utopia involves universal leisure- nobody working unless they particularly want to.

    For 'leisure' read 'unemployment'- and suddenly Britain becomes a Utopia!

  • rate this
    +2

    Comment number 434.

    "Today all politicians want to cut unemployment"

    Where did you get that idea? The Tories are back. They are elected *in order* to create a large pool of unemployed people so that wages can be cut and hours increased, and the bosses can say, "not happy? there are x million out there who'd love to have your job, so STFU".

  • rate this
    +1

    Comment number 433.

    Some young were rioting... Some hospitals are not up to it... Uni fees are in... Unemployment is up... Rents are getting high... The Bank of England is printing more money... The jails are full... Energy bills are going up... We can blame the previous and the present governments for parts of the above. Is it time for alternative political parties, because the two of them have failed us!

  • rate this
    +2

    Comment number 432.

    Like "Labour isn't working2 , and the "NHS is safe in our Hands" it is merely a method of encouraging the gullible to vote for the Tories.

    Incidentally the last time we had full employment in the UK was in World War 2!

  • rate this
    -1

    Comment number 431.

    We could have full employment with low inflation. That is exactly what we achieved in the post-war Golden Age until about 1973. How did we keep inflation down? Immigration. Keep people coming in to fill the new jobs, and you don't have labour-shortage inflation. Sure inflation was higher than during the 1990s, but with an independent Bank of England like today's, we'd crack both problems.

  • rate this
    0

    Comment number 430.

    deapansean - definitley no hard feelings,in fact it was a pleasure communicating with you even though ideas are vastly different it all adds to life's pagentry of opinion,thought your comments are/were thought provoking and interesting.

  • rate this
    +3

    Comment number 429.

    #382:
    3. Technological change, the effect of which has been reduction in unskilled and skilled manufacturing jobs .
    The micro-chip was expected to lead to a shorter working week and increased leisure. The actual effect has been longer hours, to repay the investment and increased unemployment.

  • rate this
    -1

    Comment number 428.

    There are people who just don't care. Not through lack of effort, but from lack of motivation. Why try if you're fine as you are?

    There is an entire culture of these people and they need to be dealt with enmasse. They have no intention of contributing because we've developed a system that can be exploited quite easily to those who have the time. Those who will, have nothing but time.

  • rate this
    +2

    Comment number 427.

    Unfortunately youth unemployment has increased every year since 2001 and of course suffered big rise in 2008/9 as with general unemployment where it jumped from @1.5million to 2.45m

    But also interesting to note that the number employed has increased at lot since WWII with more women employed and having careers.

  • rate this
    -2

    Comment number 426.

    In the past we had full employment because we effectively exported our unemployment to other countries. Previously, you'd have crushing poverty-causing widespread unemployment in places like India while we had all the jobs. Now the Indians and the Chinese have got the jobs and the unemployment has flowed back to us.

  • rate this
    -2

    Comment number 425.

    Uncontolled mass immigration under a useless Labour governement determined to ruin this country is what happened, typically this will probably get mass negativity from all the 'modern' and 'sophisticated' closet socialists who work for and endorse the left leaning BBC. I am afraid the age of Augustus has gone and now Caligula has come into full effect.

  • rate this
    +3

    Comment number 424.

    Full employment ended when large companies became multi-national and thus owed allegiance solely to shareholders and not their nation of origin.They then felt free to move to the source of cheapest labour,a trend accentuated by the collapse of communism and the rise of china.

  • rate this
    +3

    Comment number 423.

    419
    Good Luck Helen!

    I was long term unemployed in the 80s so I know what it's like. My advice? Take any job you can in the short term - even one-day-at-a-time agency work can help self-esteem & can stand you in good stead for getting interviews.

    :)

 

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