In recent months data has been trickling in hinting at an imminent end to the recession. But the outlook remains dire for large sections of our society.
Unemployment is set to rise for some time to come, in a slow and painful ‘jobless recovery’. Unemployment is now close to 2.5 million – and the young are the worst hit. The economist David Blanchflower believes that the figure will continue to approach the 3 million mark and perhaps even 3.5 million, and he is clear about the political implications: ‘…a stark message to the business secretary, to Gordon Brown and to Alistair Darling: you are not doing enough.’ And Paul Richards, writing for Progress Online, has stressed the historical importance of this message for Labour – and the urgent need for action.

The importance of employment in ensuring an adequate and dignified standard of living suggests a strong case for adopting  a commitment to full employment. Traditional Keynesian macro-economic demand management involves government action to steer the economy. This policy framework, based on a belief in the ability of governments to ‘fine-tune’ the economy, fell out of favour amidst the economic turbulence of the 1970s, and the view that there is a ‘natural rate’ of unemployment entered consensus thinking.

The economist Hyman Minsky proposed that the state step in directly to provide employment, acting as an ‘employer of last resort,’ and implementing direct job creation schemes. This is indeed what happened to a certain extent under the New Deal reforms during the Great Depression. Schemes implemented by the Roosevelt administration employed hundreds of thousands of people in infrastructure and environmental projects3. The ‘employer of last resort’ principle has also been applied in other countries, for instance Sweden and France.

Such schemes would be freer of the inflationary effects of traditional Keynesian demand management since spending would increase only up to the point that full employment is ensured. In a recovery, spending on job creation would reduce as workers are reabsorbed into the private sector.

The unemployed could be offered jobs in a variety of ways, such as working with the elderly, in schools, on environmental improvement, in international development, on infrastructure projects and in culture.

The state would not compete with the private sector; the point is not to replace the market economy, but to overcome its shortcomings. The pay rate set in direct job creation schemes would effectively function as a minimum wage and once participants found better paying jobs, they would move on. Such schemes would not replace other forms of social protection, as there would always be groups in need of such help. And care should be taken to ensure that people in jobs are not simply replaced by cheaper alternatives. Moreover, a job creation scheme need not be compulsory; there would be people opting not to participate, for legitimate reasons.

Providing jobs for people hit by economic crises would reduce the social and psychological impact of unemployment, and there would be a ‘work-ready supply of labour that is capable of meeting the demands of employers in the private sector4 in times of recovery. This would not necessarily be the case if the unemployed are left out of work for long periods of time.

Arguably the responsibility for financing, though not implementing, a job creation strategy should rest with the Bank of England. This policy would thus not impact the budget deficit, but would be part of the cyclical economic management duty of the central bank, whose ambit would be expanded to maintaining full employment as well as low inflation.

The government has undertaken to guarantee work or training for every under-25 unemployed for a year or more. This scheme could serve as a model for how a full employment strategy might be implemented. From this important initiative to a more comprehensive direct job creation strategy we don’t need a great leap of imagination – but the courage to follow through with steps already taken.

This article outlines the arguments in a pamphlet ‘The case for direct job creation’ which you can download here.