What would full employment look like in contemporary Britain?

Amna Silim27th November 2013

Outline

• The new case for full employment

• The evolution of British employment policy

• Full employment in the mid 2000s

• The potential trade-offs with full employment

• Elements of a new definition of full employment

• Policy directions

The new case for full employment• 80 per cent employment rate – alongside

very low unemployment rate

• Additional 3.5 million people would need to be in work

The evolution of British employment policy

• 1945 to mid-1960s: post-war consensus on full employment / demand management

• Late 1960s and 1970s: breakdown of the post-war consensus – rising inflation, oil shocks

• 1970s / 1980s: new orthodoxy – low and stable inflation

• 1990s / 2000s: inflation focus + employability • Late 2000s: more focus on wider labour supply but

rooted in employability

0

2

4

6

8

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12 UK unemployment rate (claimant count), 1945 to 2012

The long-term picture

71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 1364

65

66

67

68

69

70

71

72

73

74

UK employment rate, 1971 to 2012

The new case for full employment

Why full employment?

• Labour market inclusion

• Family incomes and poverty• Public finances

Benefits of full employment • If higher employment forced up real wages by 2 per cent

in 2013/14 (instead of the 1.5 per cent drop predicted by OBR)– In 2013/14 tax credit and benefit spending would be

£1.1 billion lower– Income tax and national insurance receipts would

increase by £12.5 billion higher

Benefits of full employment

Increasing the employment rate from 71.5 per cent to 73 per cent

– Net gain to the exchequer of £5.5 billion– Spending on tax credits would fall by £2.4 billion a

year– Income tax and national insurance receipts would rise

by £3.1 billion

International context (1)

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4045505560657075808590 Employment rate, selected OECD countries

2007

2012

International context (2)

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30 Unemployment, selected OECD countries

2007

2012

‘Full employment’ in the mid-2000s

‘Full employment’ in 1973 and 2006

1973 2006

Able-bodied, working-age men working full-time

Proportionally fewer men in work

Women in unpaid care work or working part-time

Many more women in paid work, still doing most caring

Few workless households Many more workless households

Good spatial distribution of jobs

Worklessness more spatially concentrated

‘Full employment’ in 2006• Strong employment performance among prime-age men• Employment gaps fell - but significant gaps remained:

– People with particular disabilities – Some people from an ethnic minority background– Older women– People with few / none formal qualifications – Parts of the North, Wales, Northern Ireland, London

• 4 million+ working-age adults remained on out-of-work benefits

Regional employment trends

UK

Northern Ireland

London

Wales

North East

North West

West Midlands

Yorks & Humber

East Midlands

Scotland

East

South West

South East

64 66 68 70 72 74 76 78

Employment rate (%)

Northern Ireland employment• Northern Ireland 2006

– Female Employment: 61.3 per cent (UK 66.9 per cent)– Male employment rate: 74.3 per cent (79.0 per cent)– Inactivity rate: 27.2 per cent (23.0 per cent)

2013– Older employment rate: 61.7 per cent (NI average 67.3 per cent)– Youth employment rate: 40.9 per cent (NI average 67.3 per cent)

The potential trade-offs of full employment

Inflation• Relationship between inflation and

unemployment very weak over the last 20 years

• External factors (e.g. commodity prices) have been more important for determining inflation

Productivity• Good evidence for an employment-productivity

trade-off• Higher employment rates means more people with

relatively low productivity in work, often in low-productivity sectors

• But weak productivity growth in domestic sector likely to mean weak wage growth, poor job quality

Elements of a new definition of full employment

Key components• Target employment as well as unemployment• Households as well as individuals

– Tackle household worklessness– Dual-earner household strategy

• Recognise people’s roles as parents, carers and active citizens

• Opportunities for learning esp. for young people

Do we need a target?• Technical difficulties over definition• Post-war governments got there without a target• Politicians unlikely to adopt until close to

achieving• But need an answer to ‘what do you mean by full

employment?’• Full employment = low unemployment rate and

80% employment rate

Policy directions• Target monetary policy on job creation • Rediscover job creation / labour demand as well as

supply / employability • Prioritise social investment in public spending• Stronger employment support and job creation for

specific groups • Stronger counter-cyclical options e.g. more focus on job

retention in future downturns