What about those left outside our brave new world?

ECONOMIC VIEW

The French have a certain je ne sais quoi when it comes to finding phrases for concepts the English language cannot handle. One of them is the exclus, those excluded from the mainstream of the economy and society by homelessness, unemployment or dead-end jobs.

Most of Britain's partners in the Group of Seven industrial countries were keen to discuss at this week's jobs summit in Lille how to re-include the exclus. The British ministers were not, robustly asserting that the best way to guarantee social cohesion is simply to create growth and jobs. But theirs is a minority view.

In its annual report on the UK economy, due to be published this summer, the Organisation for Economic Co-operation and Development will criticise the Government's failure to consider policies to re-integrate the poor and unemployed and its failure to halt the increase in inequality. The rich countries' think-tank says these are the top priorities after nearly two decades of focusing on deregulation of the economy.

For the Government's insistence that growth in employment is the be-all and end-all of policy ignores the subtleties of how labour markets are changing in the rich industrial countries. The British Government tells a simple story of an upward trend in unemployment in Continental Europe due to over-regulated economies and over-burdensome social security, and falling unemployment in the Anglo-Saxon countries thanks to deregulation and flexibility.

The headline unemployment figures are undeniable but they disguise the mix of job losses in low-skill industries and employment growth in high- skill areas. The Anglo-Saxons and Japan have enjoyed faster growth of higher-technology industries than the Europeans, whether because of active policies such as telecoms deregulation or an initial advantage in technology- based industries.

The American delegation to the G7 summit was particularly keen to emphasise this pattern to challenge the perception that most of the massive 8.4 million new jobs created since President Clinton took office have been "McJobs", offering bad pay, grim conditions and worse prospects. The perception is damaging to an administration which has always said education and reskilling the workforce was at the centre of its economic strategy, and which wants to use the same message in this year's Presidential election campaign.

Joseph Stiglitz, chairman of President Clinton's Council of Economic Advisers, said up to 5 million of the 8.4 million jobs fell into high wage categories, mostly in the service industries. Most were full-time and most paid wages higher than the national average, he added.

It is not surprising that an administration official would want to talk up these achievements, but the pattern of job creation in America and elswhere was the same in the 1980s. According to a new OECD study* there has been significant jobs growth in high-skill sectors in all the big industrial countries. As the chart shows, average annual growth rates in this type of employment ranged from slightly more than 2 per cent in Italy to more than 3 per cent in Canada. Low-skill employment grew much more slowly, and fell in France and Germany. (There are no comparable figures for the UK.)

At the same time, wages for high-skill workers have risen while the unskilled have seen their incomes fall. The laws of supply and demand have reflected the change in the types of work available and the shortage of workers with suitable skills for the growing industries. Income inequality has increased most in the US and UK, and least on the Continent.

The change in Britain's income distribution since the end of the 1970s has been dramatic. Inequality has grown faster than in any other developed country except New Zealand, according to last year's Rowntree Inquiry into income and wealth. Incomes of the poorest tenth of the population were the same in 1992 as in 1979, while those of the richest tenth increased by 57 per cent. However, spreading inequality is common to all the industrial nations. The OECD comments: ``Overall, there is substantial evidence that the situation of unskilled workers has deteriorated in absolute terms.''

Its report is nevertheless optimistic about the longer-term outlook for employment and prosperity. Information technology, by making knowledge a commodity that can be easily transmitted and traded, has laid the foundations for what its researchers call a ``knowledge-based economy''. Building on these should deliver faster productivity growth and increasing prosperity.

The OECD cites the multimedia industry as an example of how this favourable process can work. Huge new demand for its services has given rise to significant creation of good jobs for skilled workers. The conditions for this to happen were in place in the US and UK, where government policy had fostered competition and encouraged new firms to enter the market.

This is great news for people who already have the skills to work in the new knowledge-based industries. An obvious message for governments is that they need to make sure the education system produces more of this kind of worker. Education is central to a good economic performance.

More than that, it is an essential element in halting the polarisation between those with the skills needed in our knowledge-based economies and the exclus. For all the apparent differences between the industrial countries in their success in job creation, they are all the same in this respect. They have a skilled, well-paid core workforce and a periphery of people who are trapped with low incomes and dim prospects.

People in this periphery might be unemployed, holding a badly-paid unskilled or part-time job, working mainly in the underground economy (also badly paid and low-skill) or involved in crime. The mix differs - for example, the Americans have more criminals and fewer unemployed. Britain's underground economy has accounted for a sizeable10-12 per cent of GDP since the mid- 1980s, and needs to be seen as another facet of the unemployment problem. But the general picture is the same across countries.

Recognition of this common problem lay behind the summit's emphasis on social cohesion. The ministers in Lille were unanimous in accepting the need to embrace the opportunities presented by the tidal wave of technical change and increased competition. Most were optimistic about the resulting employment prospects. But the British Government was alone in refusing to admit that those excluded by this process could not be ignored for another 10 or 20 years.

*Technology, Productivity and Job Creation, OECD, April 1996.