The idea of governments promoting full employment was fairly mainstream in the decades after the Second World War. This view, based on the belief that governments could manage demand in the economy in order to ensure full employment and low inflation, fell out of favour in the 1970s as the Reagan-Thatcher consensus took shape.
The new dominant view was that there was a natural rate of unemployment, a level of joblessness below which it was unhealthy to go, or to try to go. If you are wondering why economics is sometimes called the ‘dismal science’, then look no further. If you regard unemployment as a huge waste of human potential, a massive obstacle to achieving social justice, then this is a remarkable failure of imagination. The medical profession, after all, continually searches for newer and better cures for cancer – doctors don’t just shrug their shoulders and talk of a ‘natural rate of cancer.’ Isn’t the conundrum of how to get people back into work without provoking a rise in inflation a challenge to get to work on designing new institutions? Not so, according to the adherents of the neoclassical view that formed the dominant ideology in the pre-crisis era.
Luckily there were those who did continue to work on alternative ideas, and their work is a valuable resource in dealing with the problems that have arisen from the latest crisis. One of these individuals was the American economist Hyman Minsky, who proposed a solution to the conundrum of maintaining full employment and low inflation. His proposal was for the state to step in and directly provide work for the jobless – a job guarantee.
Such direct employment provision would be freer of the inflationary efforts of old-style demand management as spending would increase only up to the point that full employment is ensured. And in a recovery spending on job creation schemes would reduce, as people return to the private sector. The wages paid in job guarantee schemes should, according to Minsky, amount to the minimum wage and so there is still an incentive to take up better paid work when it is available. The idea is not about competing with the private sector; not replacing the market economy – only overcoming its shortcomings. A job guarantee would also avert the social and psychological consequences of unemployment, and ensure that people retain the skills needed for re-entry into the labour market.
But isn’t such a scheme unaffordable? Not necessarily. Let’s do a back-of-an-envelope calculation. At the minimum wage of £5.80 per hour, with a 35-hour week, the annual wage bill for 2.5 million unemployed would be £26 billion. To put things in perspective the budget deficit for the past year was some £163.4 billion. And the Bank of England recently printed £200 billion in its “Quantitative Easing” programme.
Labour, in 2009, introduced the Young Person’s Guarantee, for the young long-term unemployed, and the manifesto includes a pledge to extend this to all ages. Not help with job applications, advice on how to write a CV – a real job guarantee. There are immense challenges in implementing a job guarantee for all, this is not something that can be created overnight, but we are well on the way to creating a workable scheme. A key part of the guarantee is the Future Jobs Fund – people are being hired by local government, companies and the non-profit sector to do real work, to meet needs in our society.
They aren’t just being hired to dig holes in the ground.
Of course a lot of this will not come in time to help all of those who have lost their jobs in the current downturn. But an institutional framework will be in place well ahead of the next downturn. This is a bold and well-crafted new initiative that Labour deserves to be proud of.
Indeed this is the key new idea of this election.
Photo: Downing Street 2009
There’s plenty of room for optimism with your ‘back-of-an-envelope’ calculations…
Your £26 billion would in reality be much lower once you take into account not only the increase in returned tax revenues but also the savings on JSA, Housing Benefit and other benefits paid to the 2.5million.
My own back of an envelope calculations throw up a ballpark figure of almost £8b saved in JSA alone.
This is all very simplistic as full employment is always hypothetical and misses the key point of your piece – but just thought I would add it.
Excellent piece and I fully back the idea of a job guarantee. the cost calculations
might also modestly estimate the savings to the public purse in respect of almost
every other public service that is affected by unemployment and related child poverty.
we have decided that all our children deserve to be educated why on earth have we
not decided that our citizens deserve a valued and valuable role in the society they
live within. we would not tell some children they are not woth educating and nor
should we class some people as not worth employing. the imginary bar we have created
disguised as skills training is social exclusion
A promise by New labour, is not something I take to much notice of.
We had promises before and nothing came of it, for me believing anything brown says is difficult.
Thank you very much for your comments. RobMac and Eriika, I agree that there are other savings involved, reducing my ‘back of an envelope’ figure. It is also true that we wouldn’t be employing all 2.5 million, as some of them will be short-term unemployed – and some of the wages could be expected to be covered by the employer. My figure assumes the government pays 100% of the wages in any job under a job guarantee scheme. And Erika, I like your comparison with education. We don’t talk about a natural rate for illiteracy, right?
I can understand Robert’s skepticism after all these years with one government – but this is actually a policy that is being implemented now, not a mere promise. It is already happening.