Comment: Employment needs active policy

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The unemployment figures are worrying for a number of reasons. Quite aside from the human cost, and the cost to the taxpayers of the rise in the unemployed, they are worrying because they seem to be saying something worrying about employment too. One should always be cautious about building an argument on one month's set of figures, but there seem to be two rather different messages that can be drawn from these.

One is that we are seeing the lagged effect of a sharp fall in manufacturing employment in the autumn. Until then, it had been mainly the service industries that had been shedding labour; there had been some fall in manufacturing employment but nothing serious. Then the virus spread, and to judge by the redundancy plans announced but not yet implemented, it has some months to run before it will be checked.

The other is that as the economy gathers pace it will not create many new jobs. Notwithstanding the retail sales and industrial output figures, the economy is clearly coming off the bottom. The recovery will be a halting and intermittent one, but Britain will almost certainly see growth of between 1 and 2 per cent this year. This will the second or third best figure, after the US and maybe Canada, of the Group of Seven nations. That ought to stabilise unemployment by the end of the year, but it may not do so.

It is important to distinguish the cyclical and structural elements to the unemployment problem. This is not particularly a British issue, for if you adjust for the point we are at in the economic cycle, we are in the middle of the G7 in unemployment levels: worse than the US, Japan and Germany; better than France, Italy and Canada.


There is not a great deal more that can be done about the cyclical position. Yesterday's figures set the City expecting another half-point off base rates. There clearly will be further cuts, and whether these come at the time of the Budget or before is not really very important. If bringing base rates down from 15 per cent to 7 per cent brings about only a very modest recovery, it is hard to see that the world would be greatly changed by bringing them down to 6 per cent.

One could say the same for fiscal policy: anyone who believes that something can be done in the Budget that will help cut unemployment has to explain why the rise in the deficit has equally failed to stimulate a robust recovery. The cycle is turning, but painfully slowly.

The structural problem, however, will remain. Indeed it may get worse for a while, until the decline in school-leavers takes hold in the second half of the 1990s, if these figures are any guide. This is the area that needs to be attacked.

Earlier this week the Labour Party did bring out some plans that deserved a fairer hearing than they received. Unfortunately the plans were presented in overtly party political terms, and included an attack on public utilities for their pricing policy, which was to be countered by a windfall tax. The result was that attention was focused on the tax side, rather than on the merit or otherwise of the actual measures to help the long-term unemployed.

In as far as the measures were discussed at all, they were attacked for being unimaginative. That was a fair enough criticism (there was an element of 'round up the usual suspects' in the plans for training, investment and so on) but an irrelevant one. What is needed to combat a long-term structural problem is not imagination but precisely the reverse. We need cautious, detailed research, conducted in close association with potential employers.

Expressed generally, the way forward must be to focus on active employment measures, of which training is an important part, to eliminate bottlenecks in the labour market as they occur. The central problem is that as large companies continue to shed labour, it is much harder to see where the jobs will come. They will come, but they will be in many smaller companies, some of which do not even exist at the moment. There is no point in training people for jobs that do not need to be done.

As demand picks up, the research ought to start feeding back information about the ways in which jobs are being created. The places to look to some extent will be in the areas where Britain already has a clear competitive advantage in the world: entertainment, media, financial services, some craft-based industries. They will also be in less glamorous service industries including hotels and catering. If US experience is any guide, many of the new jobs will be low-waged, lower than the jobs that are displaced. The trick, then, will be to ensure that people are able to maintain a decent standard of living, despite being in low- waged jobs. This will require care in the application of other policies.


There will also have to be more care in the way all policy is framed. Most aspects of government policy have employment implications. Yet on the evidence of recent energy policy (to take an obvious example) this is not something that it routinely considers.

The Government, at last, is acknowledging that structural unemployment requires special attention: that this is not an issue that the economic cycle will automatically solve. That is progress, though the change in policy is almost certainly a response to the anger and concern of the country, rather than any intellectual conversion on the part of ministers.

Now, let them be advised of three things. First, the jobs that come back will be different from the jobs that have gone. Second, from now on employment policy needs to be more active: identify industrial opportunities (including opportunities for import substitution) rather than making cosmetic changes to the unemployment register. And third, since virtually all policy affects employment, all policy should be audited for its employment implications before it is put into practice.

There is no magic wand, no simple solution. The plans of the Opposition should not be oversold, but they are a helpful contribution to the debate. There are ways forward, which encompass a series of detailed acts to boost employment. Individually each will have only a limited effect; cumulatively they could be very helpful.