George Osborne gave a speech today in which he gave a commitment to achieving ‘full employment’. The trouble is, full employment means different things to different people. Osborne seems to think it means having the highest employment rate in the G7. We’re already 4th on that measure (which is I guess why he chose it), but is this a good measure? It looks at the proportion who are employed, but to know if we have ‘full employment’, don’t we need to know how many are ‘unemployed’?
Chris Giles already has a blog up today with the same name as this one, and he gives two other definitions to the one George Osborne is using. Post-war, full employment just meant everyone had a job who wanted one. For most of the 50s and 60s, this was indeed the case. As Robert Skidelsky says here:
“Between 1950 and 1973 unemployment averaged 2% and was always well under one million.”
2%! We’re supposed to be happy with 7% today. Of course at that time there were much fewer women in the workplace, but they weren’t classed as unemployed because more households could get by on one income back then.
The second definition Giles gives I suppose you could say is the economist’s definition. That is called the NAIRU or the “non-accelerating inflation rate of unemployment” to give it its full name. Many (most even) economists believe that there is a trade-off between inflation and unemployment and that once unemployment falls below a certain level, inflation will start to accelerate. Ex Tory Chancellor Norman Lamont once said that unemployment was a price well worth paying to ensure inflation stayed low. The NAIRU in the UK is estimated at anywhere between 5 and 7%. This Guardian story gives a bit more detail:
“The Bank of England and the Office for Budget Responsibility (OBR) suggest that once the “equilibrium rate” for unemployment is reached, then full employment is achieved. The OBR said in its fiscal and outlook forecast, published at the same time of the budget, that unemployment would fall to its equilibrium rate in 2018.
The equilibrium rate is not fixed. In its February 2014 inflation report, the Bank of England said that the medium-term equilibrium unemployment rate was 6 to 6.5%, which means that unemployment remains 0.75 to 1.25% above this. The OBR said it judged that the long-term unemployment rate was 5.25% – with unemployment 1.75% above that. The bank says that the medium-term equilibrium unemployment rate will fall as demand recovers.”
So where does that leave use then? Full employment is either “the highest employment rate in the G7”, some technical, estimated rate believed to be the low-point at which inflation remains stable, or some loose (but much higher in some respects) definition of “everyone who wants a job has one”. I prefer the latter, but we could even extend this further and define it as “everyone who wants a job has one at a wage high enough to have a decent standard of living”. Wouldn’t that be something worthy of the name “full employment”?
I suspect George Osborne thinks he can get to his version of full employment by doing basically what he’s been doing, a bit of hand-waving while relying on the private sector to pick up with the help of rising levels of household debt. Which will be fine. Until it isn’t. Genuine full employment requires a much more active government than any of the main parties are currently willing to entertain. Here’s some further reading on how we could really get there.