Towards full employment in the UK?

George Osborne has promised full employment, but closer examination suggests a continuing lack of ambition

Jason HeyesIn 1991 Norman Lamont, Chancellor of the Exchequer in the Conservative government, famously stated that, if unemployment was the price that had to be paid for reducing inflation, it was ‘well worth paying’. Lamont’s words entered the public consciousness and served mainly to reinforce the view that the Conservatives were the ‘nasty party’.  At the end of March 2014, however, his successor, George Osborne, apparently repudiated Lamont and announced that the Conservatives were committing themselves to achieving ‘full employment’.

Full employment can be defined in a number of ways.  However, Osborne declined to provide a definition of any kind, stating that his ambition was for the UK to achieve the highest employment rate of any country in the G7.  The problem is that, of itself, this is a fairly meaningless target.  Being top of the heap simply means that everyone else is doing ‘worse’ than you are.  In addition, it implies a competition between countries that just doesn’t exist on this front; it’s also unclear how such an achievement might be sustained.

Employment rates fluctuate and tend within the G7 to lie within 5 percentage points of each other.  In fact, Osborne’s professed target was met every year from 2002 to 2005 (under a Labour government). However, according to OECD statistics, for most of the 1980s and 1990s, the US had the highest employment rate among the G7, although in 1990 the UK was again the ‘winner’.  It is unclear, though, what difference this ‘success’ made to the long-term fortunes of the UK economy.  Indeed, if Osborne really meant to be ambitious, why restrict the UK’s ‘competitors’ to the G7? Why not aim to achieve consistently an employment rate higher than that of Denmark or Sweden, which have long done better on this indicator than the US (the most frequent ‘winner’ in the G7 group)? For that matter, non-EU Switzerland has done better still!

Following Osborne’s announcement, it was reported that around 1 million new jobs were required for the UK to achieve the highest G7 employment rate (presumably this assumed no change in the labour market conditions of the other G7 countries?). How might this happen? The Chancellor ruled out the possibility of using public funds to create jobs and insisted that ‘a modern approach to full employment means backing business…[and]…cutting the tax on jobs and reforming welfare’.  In other words, what was needed was merely a continuation and intensification of the sorts of supply-side measures that the government has already put in place.  As we know, these have included removing employment protections (making it easier for employers to dismiss workers, which the government believes will increase employers’ propensity to hire them) and, through the WORK programme, placing greater pressure on unemployed persons to accept jobs, regardless of their quality or suitability.

Focusing on employment rates can also be misleading. The employment rate is generally expressed in terms of the proportion of the working-age (15-64 years) population which is in employment.  Employees are typically not counted in terms of full-time equivalents, which can lead to underestimation of the extent of under-employment.  One way of looking at this issue is therefore to examine the extent of involuntary part-time employment (i.e. workers who have taken part-time jobs only because they were unable to find suitable full-time jobs). Here we find that the percentage of part-time employees in the UK who are involuntarily employed on a part-time basis has doubled since the start of the economic crisis – from around 10% to approximately 20%.  Similarly, the proportion of workers in temporary employment who took a temporary job because they couldn’t find a permanent one increased from 43% in 2008 to a peak of almost 60% in 2011.  Self-employment has also increased substantially, although, as was also the case in the early 1980s, much of the increase has been the result of workers losing their jobs during the recession.

In each of the G7 countries the employment rate for men is higher than that for women. In Japan and Italy in 2012 there was a difference of around 20 percentage points in the employment rates of men and women aged 15-64 years, compared to around 10 percentage points in Germany, the US and the UK.  The differences, which have obvious implications for the aggregate employment rates on which Osborne focused, reflect different societal norms and forms of support relating to child-care. Policies to boost employment must not be gender-blind, but it seems doubtful that Osborne’s promise to deliver ‘full-employment’ will be accompanied by government measures to improve substantially the affordability of child-care and other forms of care in the UK!

There are other unanswered questions for George Osborne.  For example, what’s the government going to do about low job quality? The second part of the EU’s mantra of ‘more and better jobs’ has already been set aside, but it’s widely recognised that many of the new jobs being created in the UK are low-waged.  There has also been an increase in highly precarious forms of employment, such as ‘zero-hours contracts’ that provide no guarantee of work or payment, yet typically require workers to submit to a contractual obligation of exclusivity.

The expansion of low-paid work has fuelled in-work poverty and helped to push the issue of the ‘living wage’ up the policy agenda.  But there is also evidence that returns to investments in education are decreasing.  As the Office for National Statistics (2013) has recently demonstrated, credential inflation (i.e. devaluation of academic qualifications) and displacement effects have been at work in the UK labour market and have been exacerbated by the economic crisis.  The proportion of recent graduates working in non-graduate jobs increased from 37% in April-June 2001 to 47% in April-June 2013, while the proportion of employed recent graduates in relatively low-skilled jobs increased from 26% in 2001 to 38% in 2013.  A corollary of highly educated workers being hired for jobs for which they are over-qualified is that less educated young workers are facing ever more difficult transitions into work.

The return of full employment as a priority for the UK coalition government is obviously a welcome development, but it must mean more than increasing the employment rate.  The current expansion in the number of poorly protected low-wage jobs is not a recipe for economic growth and social cohesion.  Improving job quality, security and support for transitions within the labour market must also become priority issues for policy-makers.