Are the ONS gaming the unemployment figures?

No. No they are not.

The ONS provide a full explanation of how they come up with the numbers. They are compiled via the Labour Force Survey, which adheres to international definitions of employment and unemployment. There is a lot more information contained in the link above, but the TL/DR version is they ask a lot of people – enough people to be able to make strong estimates for the whole economy – questions about their employment status. The results are then reported as the official numbers. They take account of people taking part in workfare-style schemes and people who have been sanctioned off JSA.

Unemployment is still falling. There are a lot of good questions to ask around the quality and duration of the new jobs being created, but the figures as published are right (or at least as right as they has ever been). There is no conspiracy* between the ONS and the government.

*As an aside, if there is a conspiracy, it’s to make the ONS website the most un-user friendly on the web. It’s horrendous!

Digging holes and filling them back up again

When someone suggests that the government should just create jobs for the unemployed, you often hear the retort, that this is a bad idea, because the jobs they would create would be of no value, akin to digging holes and filling them back up again. The reference to digging holes comes from (I think a misunderstanding of) something Keynes wrote in the General Theory. He wrote:

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

So he is using an example to show that any task (however pointless) that will pay an income is superior to leaving people unemployed and earning nothing, but that we can come up with much more useful things for people to do. So even if the government created some jobs that were akin to digging holes and filling them back up again, that would still be better than unemployment.

I was reminded of this yesterday by Neil Wilson who pointed out that there are however quite a lot of holes that may not need digging, but certainly do need filling up again.

Some joined up thinking needed perhaps?

Is free movement of labour within the EU a good thing?

This is my third post in a series of pieces on Britain and the EU. In the last, I examined some economic consequences of Britain’s EU membership, and in this post, I want to look at another consequences – free movement of labour. Studies looking at the first wave of immigration from A8 countries after 2004 find a positive impact on the economy as a whole. These macroeconomic effects mask the ‘distributional’ impacts however.

There are winners and losers from free movement of labour. The thinktank Open Democracy published a report in 2012 which looked at this issue. Here are a few stats it draws out on immigration to the UK from A8 countries:

There are some aspects of this that could be seen as positives. We have an ageing population, so an influx of young, skilled migrants could help ease some of the issues and ageing population brings. Those skills could improve the productivity of the UK economy, supporting vital services.

In other regards though, the effects of these factors on the low-skilled end of the labour market are likely to be significant (even if the overall impact on the economy is positive). While A8 migrants are relatively higher skilled, they are often not doing work commensurate with their skills. People argue they are doing jobs Brits won’t do, but  we are supposed to believe in supply and demand. If Brits won’t do a particular job, the employer should either increase the wage offered or invest in capital equipment to reduce the requirement for labour. If it can’t or won’t do either of these things, the job probably shouldn’t exist.

An influx of young workers is also likely to place pressure on particular services in certain parts of the country. Schools, housing and health all face greater pressures due to immigration from the EU, although the magnitude of the impact is not equally spread throughout the country. This can be dealt with if the government has the ability and the will to increase provision of these things, but housing, schools,  medical facilities and the relative professionals to staff these things take a long time to build and to train, while planning is difficult when you don’t know how many people will come and where they will settle.

Migration to the UK from Eastern Europe is related to the unemployment rate in the home nation. When unemployment is high, people emigrate. While a period of high unemployment on the continent may coincide with a labour shortage in the UK, equally, it may not, so the numbers coming and their timing is largely based on the performance of economies elsewhere.

Other countries use a points-based system to determine who they want to allow into the country, and they can loosen or tighten the points criteria as needs change. In the UK, we have a visa system for those wishing to come to the UK from outside the EU, but cannot impose restrictions on those coming from the EU itself. Even if you believe immigration is a positive thing (and I broadly do), the idea you would not be able to impose any restrictions of those seeking to come from certain parts of the world – regardless of your national interest – just doesn’t sit right with me. This is one area that would need significant reform before I could be convinced the continued UK membership of the EU is desirable.

 

 

‘There is no credible theory that relates starvation with an increased capacity to gain employment’

In the US a number of states have started to cut unemployment benefit even while unemployment remains high, and here in the UK, George Osborne thinks it is a good idea to lengthen the time newly unemployed people must wait before claiming benefits. At the same time, Jobcentre Plus will start hauling in about 50% of job seekers for weekly interviews. Many people suspect this is designed to find more excuses to sanction claimants and strip them of their benefits. This seems to rest on the theory that if the unemployed cannot rely on the state for subsistence levels of support, they will be more motivated to find work. As an antidote to that viewpoint, here’s an extract from a blog by Professor Bill Mitchell discussing the situation in the US. It equally applies here:

“…there is no credible theory that relates starvation with an increased capacity to gain employment when the economy is some millions of jobs short of the level necessary to provide work for all those who desire it.

Forget the smallest margin of unemployed who do not want to work. They are of a second-order of smallness that doesn’t warrant attention. The overwhelming majority (comprising millions of citizens) want to work but cannot find work because it is not to be found.

Why not? Because there is a lack of spending in the economy. Firms create employment in response to demand for their products. They might be confronted by millions of desperately hungry workers who have just had their benefits cut but they still won’t put them on because there is insufficient demand to justify expanding production.”

DWP offers intensive support for any dog failing to find a bone after 2 years

The title above refers to this press release today from the DWP:

Work Programme leavers targeted by specialist advisers as part of a tough approach to get them into a job.

A more honest title would end with “… a tough approach to get them off Jobseeker’s Allowance”, as getting someone a job seems to come a distant second to those at the DWP.

Anyway, the press release is about what action will be taken once the private sector Work Programme provider has failed to find work for someone (or bullied them into being chucked off JSA) after 2 years (!!!). Apparently, those poor souls are going to be “targeted by a hit squad of specialist advisors”, which doesn’t sound too pleasant, but also begs the question of what the hell the Work Programme provider has being doing for the previous two years.

It all comes down to the same idiotic idea that the unemployed don’t have work because of personal deficiencies rather than a systemic lack of jobs, and if only the right attitude can be instilled into the individual, then a job will instantly appear. The problem with this is that it’s a fairy story. At the moment, there’s about half a million vacancies, but 2.5 million unemployed, another 2.5 million classed as inactive but want a job, and 1.4 million who are underemployed. If we send out 100 dogs to find 10 bones, most are going to come back without one, and no matter how much ‘intensive support’ we give give those dogs, unless we increase the number of bones, the same amount will come back without one next time (although maybe not the same dogs).

So rather than wasting £30m on this intensive support package (or the £5bn on the Work Programme for that matter), why not just create some jobs? What, more public sector non-jobs I hear you say? When there is spare capacity, a non-job is always better than no job at all, but with a bit of imagination we could think of much more productive things for people to do. This should be a statement of the bleeding obvious, but apparently it’s still quite a minority view. Politicians seem to much prefer to compete to see who can sound the toughest, rather than who can actually solve problems which doesn’t inspire hopes of a quick recovery any time soon.

Osborne says he won’t take us back to square one. We never left

George Osborne has been coming under increasing pressure to change course of his austerity strategy. Even the IMF – who originally backed austerity – have deserted him. Osborne is sticking to his guns however and last night, in a speech at the annual CBI dinner said:

“Now is not the time to lose our nerve. Let’s not listen to those who would take us back to square one. Let’s carry on doing what is right for Britain. Let’s see this through.”

So the message is that doing anything additional to help the economy would “take us back to square one”. But how does “square one” compare to now? Assuming square one would be the situation Osborne inherited in May 2010, have far have we come since then? Here’s a few quick stats and commentary.

1) The Deficit

2009/10: £159bn

2012/13: £121bn

So the deficit down by a quarter. This seems to be the thing Osborne is most proud of, but – putting aside the fact that the deficit on its own is neither good nor bad – this reduction has been achieved primarily by cutting capital expenditure in half. From right to left, almost all commentators believe capital spending is precisely the thing not to cut, so in trying to lower that headline deficit figure, he’s actually setting us up for problems further down the road. Square one with double the capital spending actually sounds quite attractive.

2) Unemployment*

3 months to March 2010: 2.51m

3 months to March 2013: 2.52m

Yes, you read that right. Unemployment is actually higher now than in the comparable quarter in 2010. We are still at square one!

3) Employment*

3 months to March 2010: Employment rate – 72%; Total Employed – 28.83m

3 moths to March 2013: Employment rate – 71.4%; Total Employed – 29.71m

The Coalition like to say it has created 1 million private sector jobs. The net additional jobs since March 2010 though has been just under 1 million, and the working age population has risen faster than that, so the employment rate has actually fallen. Square one would actually be an improvement here.

4) Real Incomes

Median hourly earnings 2010 (constant prices): £11.92

Median Hourly earnings 2012 (constant prices): £11.21

Real incomes then have fallen since 2010, so again, square one doesn’t look too bad.

5) Interest Rates 

10 year bond yield May 2010: c3.6%                                          

10 year bond yield May 2013: c1.9%

Interest rates are another success Osborne likes to trumpet, and they have come down since 2010 (although by May 2010, they were already coming down). Whether this is a good or a bad thing depends on whether you are a borrower or saver, but assuming they are a good thing, how much credit should Osborne take for them? According to Jonathan Portes, not much.

In conclusion then, if Osborne were to change course, taking us back to square one, what would that look like? The deficit would be higher, but so would capital spending. Unemployment would be slightly lower, and a greater proportion of people would be employed. They’d also be paid more for that work. Interest rates would be higher (although on a downward trend). So the overall economic picture has barely changed since May 2010. I haven’t even mentioned the almost complete absence of economic growth since then. It looks like we never left square one. Going back there would actually be a slight improvement, and if we could go back there, but deploy our resources smarter than Gordon Brown in 2009/10, a huge one.

* Labour market figures sourced from ONS here: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/index.html

“There is no secret to solving unemployment”

One of my favorite blogs is “Billy Blog” produced by Professor Bill Mitchell. He somehow manages to knock out several thousand words a day of readable economic analysis – no mean feat. This is great for nerds like me, but it does mean you need to invest a lot of time reading it to absorb it all. So for those without the time to devote to reading long economics blogs, here’s a short extract from Monday’s Billy Blog on unemployment and the demonisation of the unemployed:

“…there is no secret to solving unemployment – produce jobs. There is no financial shortage to fund the necessary jobs – a sovereign government can do that whenever they choose. There is no shortage of productive things to do. There are millions of jobs that I could define which are not currently being done and which would improve the quality of our societies or communities.

The only thing missing is the political will or political leadership necessary for the government to announce that it was serious about eliminating unemployment.

The reason is that the dominant elites, which are increasingly being dominated, in turn, by large financial interests, which themselves are inherently unproductive, have developed a narrative to convince us that it is better to have millions of people doing nothing than advancing societies commonwealth.

If a person is not advancing private profit-seeking behaviour then the work is unproductive. We have bought that narrative from the elites. We have also bought the narrative that the unemployed are in some way letting themselves down – they are lazy, unskilled, lacking in something or other.

The idea that the lack of jobs is a systemic constraint imposed on individuals who are largely powerless to respond has been lost. Now we are somehow meant to believe that the individual – the micro scale – is all dominant and can overcome a macro scale shortage of jobs.

Why, you just create your own job, that’s entrepreneurship! But what would you “sell”? Anything that has a market? But if all the spending by buyers (irrespective of the particular products they buy) doesn’t add up to the total output being produced then isn’t there going to be some sellers who cannot sell anything? That’s competition. And so the denial goes on.

But the point is that the most disadvantaged citizens among them the unemployed are rendered as almost inanimate objects with all-defining characteristics – all lazy, all without entrepreneurial zeal – all just living on welfare.

We don’t publish stories about the huge welfare spending on corporates, which dwarfs the social security payouts to the poorest citizens. That would be too challenging for the narrative.”

Debt, Deficits & Unemployment

At the moment, Columbia Law School are holding a series of seminars on the theme of “Modern Money and Public Purpose”. You can go to their website here or follow them on Twitter (@thepublicmoney). I’ve posted up the video from an earlier seminar here, and now I’m posting the video from the latest event in the series.

The topic of this video is debt, deficits and unemployment. The two speakers are John T Harvey and Jan Kregel. John T Harvey has an economics blog at Forbes here and I think he does a great job of explaining economics in terms the layman can understand. The video is 2 hours long(!), but John’s slot is for the first 25 minutes and is well worth a watch. Jan Kregel then expands on the theme and the session ends with a Q & A. For the more wonkish, the reward for persevering to the end is a good discussion of the Mexican Peso crisis 🙂