Up-to-date sense about unemployment

Ralph Howell, MP

This year marks the thirtieth anniversary of the Publication of the coalition government's epoch-making White Paper on. Employment !olicy, acclaimed by Lord Beveridge as a milestone in economic and political history." For the first time ever a British government accepted "as one of their primary aims and responsibilities the maintenance of a high and stable level of employment after the war" — to be achieved by "a policy of maintaining total exPenditure."

Throughout the post-war period, successive British governments have continued this policy. The right to work is accepted by all political parties as an inalienable right of all men in a free society. And to a very large extent, judged by the criterion of the unemployment figures Post-war employment policy has been a success, with employment rates which between the wars averaged 14.2 per cent falling to an average of 2 per cent between 1955 and 1972.

It would, however, be idle to suppose that all this has been achieved at no cost. The "policy for maintaining total expenditure" is in effect a Policy of government-sponsored inflation. It was intended to be such. It was evolved in the Keynsian era when great concentrations of Personal wealth, an international monetary system based on an inflexible gold supply, and low rates of unemployment benefit produced chronic and self-generating lack of consumer demand and high rates of unemployment. Conditions today, however, are totally changed. In the world at large increasingly it is Shortage of supply which is becoming the dominant factor — not shortage of demand. Indeed world liquidity doubled between 1969 and 1972. At home employment levels in the private sector are threatened not by any shortage of consumer demand but by cash flow Problems, as companies struggle to survive the Pressures on profit margins of galloping inflation, increased taxation, price controls and increasing labour costs. But, if the primary cause of unemployment is no longer lack of . demand, how wasteful to attempt to preserve Jobs by the now traditional policy of pumping rriore money into the economy. Of course it can be done. The last Chancellor of the Exchequer, Anthony Barber, did it. But at what a cost in terms of inflation! One must question the value, and indeed the logic, of any employment policy which thus threatens to engulf the living standards of the whole of our society. Moreover, because the long-term im-. Pact of inflation upon company profits is so serious, in the end an employment policy based O n the old system of inflating the entire economy is likely to destroy more jobs than ever it created. And it threatens them in those very sectors of the economy; industry and agriculttire, which create the bulk of our national wealth.

I believe it is time for serious reappraisal of the 1944 White Paper. Above all, we must Lecognise that the conditions for which the Ynesian remedies were designed are no longer uominant today. New conditions pose new

plProblems and these problems require new so

utions. Unfortunately, when it comes to emRloYment policy, we remain as a nation sunk in

crie myths of the 1930s. In the public mind there

exists an almost total misconception about the Problems of unemployment — a misconception

carefully fostered by politicians and media alike. Thus every factory or pit closure, every reduction in public expenditure which might involve redundancies, is greeted as though it

were a minor catastrophe instead of as a normal and necessary part of economic change. Full employment can never mean a nil rate of unemployment. Quite apart from the 'hard core' of unemployables (at least 200,000 of them), it is essential to economic advance that there should always be a certain number of people changing jobs. These are the short-term unemployed. In a fast-moving world their numbers are likely to increase, They are a challenge to the Employment Service, who must provide the incentives and the facilities — not least the re-training facilities — to enable them to get new jobs as soon as possible. But their numbers are not generally relevant to calculations of demand management.

Because we insist on living in the past, we are losing out in employment policy, and Britain is the poorer thereby. We spend far too much money on unemployment support and far too little on re-training. In this we are altogether out of step with our European neighbours. In 1973 an estimated 38,000 people (out of a work-force of some 25 million) were trained in this country under government auspices. By contrast in Sweden during 1971-72, 120,000 people underwent training — about 3 per cent of their total Work-force.

This nation has an unemployment complex. As a result, we refuse to apply those policies which are known to be necessary for the control of inflation. Of course counter-inflation must involve redundancies. This is axiomatic. Inflation means excessive demand — including demand for labour. It means more vacancies than unemployed. It means shortages of transport staff, shortages of miners, of technicians, of teachers, of nurses and in the armed forces and police. It means bottlenecks all along the line — all the frustrations we have come to know so well. Counter-inflation means policies designed to produce a fall in demand — including demand for labour. How can this be achieved without redundancies? Of course it cannot Let us not deceive ourselves. What matters therefore is to speed up the rate of redeployment between jobs — to minimise the percentage of long-term unemployment and to minimise through social benefits and redundancy pay the hardships incurred through any duration of unemployment. But it is counter-productive to set the rate of benefit too high. The rate of redeployment must depend very largely on a mixture of financial inducement and statutory control. We fail on both these counts.

We are the only western nation where a man • can be regularly better off out of work than when he is employed; because we are the only western nation to pay income tax rebates to the unemployed. These, when added to unemployment benefit, regularly bring the level of in

come of the unemployed above their post-tax income when at work. Calculations of net weekly spending power (which also take into account the effects of selective welfare benefits, and of rent and rate rebates) are most revealing. Recent parliamentary answers have shown that the net weekly spending power of all married men (regardlesss of the number of children they may have) earning up to £40 per week gross is regularly greater when they are out of work than when they are employed — by as much as £8 per week. A married man with three children can find himself better off. by nearly £3 per week when he is out of work than when he has a job with gross weekly earnings of £50.

Thus there is, for the majority of our people, little or no financial incentive to return to work. Employment officers are faced with the individious task of trying to persuade people to accept a drop in spending power in order to return to work! Stricter statutory controls exercised by the Department of Employment could perhaps offer an alternative means of speeding up the rate of redeployment. But in fact we are currently witnessing a steady loosening of the controls — Giro payments replacing weekly attendance at the employment exchanges, a computerised vacancy-matching service likely to replace personal interviewing.

We have reached the stage where unemployment support is not merely anti-deflationary — it is actively inflationary. Consumer demand increases as unemployment rises: production falls. The result is 'stagflation.' We have reached the stage where the unemployment figures are regularly inflated by the numbers of those for whom there is absolutely no inducement and precious little compulsion to return to work. Yet, despite this, the figures. continue to be used by government as a major indicator of the level of demand — a basis for major decisions on economic policy.

The fact is that we know far too little about far too many of the factors which influence unemployment levels in this country. The monthly figures are known to include many people who are unemployable, many who have retired and have no intention of working again but must register in order to avoid the obligation to buy a National Insurance stamp, many who are in fact working part-time, many Southern Irish claiming with one or more insurance cards, many who are happy to 'free-wheel' on redundancy pay, and undoubtedly many who register fraudulently. Unfortunately we have no certain way to calculate the total of these people on the register, whose existence should at least not be allowed to influence decisions about the economy. It is, however, probable that in January-April 1972, when the official figures showed 900,000 unemployed, the true figure for involuntary long-term unemployment (excluding the irreducible 'hard core') was never more than 250,000, or just over 1 per cent of the insured population.

Much information, which could help us assess the actual causes of unemployment in any month, could become quickly available if the unemployment register were to be placed on a computer file. The Department of Employment is aware of this, but has no plans for any such move at the present time. Yet by this means, by providing detailed analyses of the characteristics of the unemployed at the touch of a button, it would become possible to to determine at any point of time the exact composition of the unemployment figures. Only in this way can we hope to pinpoint with any degree of speed and accuracy the different causes of unemployment in any month. Outside the regions the cause is unlikely to be lack of consumer demand.

Except in the regions therefore, increased public expenditure is no longer the best solu tion.'it is costly, cumbersome and inflationary. Much unemployment today is connected with. the problems of old and middle age. The best solution to this would be legislation — perhaps on the lines of Sweden's controversial Employment Security Bill, which guarantees job security to the old and middle-aged by inclusion of a 'first in, last out' clause in labour employment contracts. Another major cause of unemployment is lack of occupational and geographical mobility. The one requires a really fullscale enlargement of the government's retraining programme, the other a solution to the housing impasse. But all these measures, to be effective, presuppose that a man will be offered the necessary financial inducement to work.

We know almost nothing about the effects of redundancy payments or earnings-related benefits (introduced in 1965 and 1966) upon the unemployment figures. Yet there is an undoubted corollation between the rate of unemployment support and the speed with which people return to work. Had such information been available to the Chancellor in 1972, would he still have reflated on the scale he did? For we do know that between 1965 and 1971 the total value of unemployment support increased from £75 million to £500 million —.although the rise in unemployment was much smaller, namely from 300,000 to 800,000.

When he plans the future of the economy the Chancellor does not even know, with any degree of exactitude, the total number of job vacancies available. Employers are not bound to notify vacancies. The total of vacancies published monthly by the Department of Em ployment represents only some 25 per cent of the total flow of all vacancies in the country. On this reckoning there were on July 3 last some 1,800,000 jobs waiting to be filled, as against a total in the UK of some 600,000 unemployed. The true ratio of vacancies to unemployed is therefore still about 3:1.

Therefore when the pundits look forward with anguish to a predicted unemployment figure of 800,000 by next winter — is this necessarily a cause for gloom? How else can all those jobs be filled? How else can we escape the shortages of labour which are presently interfering with the economic life of the whole country? What really matters, surely, is in what sector of the economy those redundancies will fall. The anguish should be felt not because there may be 800,000 people looking for jobs but because the redundancies will almost certainly be largely restricted to the private sector, and will be accompanied by a fall in the rate of industrial growth this country can ill afford.

Throughout the post-war period we have witnessed continual stop and go in the private sector with green or amber lights all the way in the public sector. Each time the private sector is forced to retract, and the unemployment figures start to rise, there is a public outcry and the public sector takes on more staff. This may be in line with the dogmas inherited from 1944, but it is one of the things which is driving this country into bankruptcy.

Ralph Howell is Conservative MP fdr Norfolk North. He is joint vice-chairman of the Conservative back-bench committee on agriculture and employment.