Signs that the next century will work

WE HAVE become so accustomed to high and persistent unemployment, particularly in Europe, that it might seem almost absurd to suggest that the problem is likely, over the next 10 to 15 years, to recede. Yet while unemployment will clearly continue to be a real concern, and properly so, we can expect the long-term trend to head downwards during the rest of this decade and probably well into the next century.

This process will happen in Britain more rapidly than in the rest of Europe. And while the short-term cyclical upturn in demand for labour should not be confused with a long-term trend, the experience in Britain over the past year is particularly interesting for it gives a glimpse of the way work patterns will change in the rest of Europe.

But first the reasons why the long-term trend is likely to be downwards. The most obvious is demography. The decline in the size of the population of normal working age, relative to children and the retired, has received so much attention that it is hardly worth expanding on here, except to point out two things. One is that we will continue to see the impact of the dearth of teenagers on the labour market for another six years or so. The number of births hit bottom in 1977, so the smallest annual cohort is at present aged 16. The other is that decline in the proportion of the population of working age is universal throughout the developed world, so the demographic trendswill have a similar effect in all 'industrial' countries.

Note those inverted commas, for in all developed countries the proportion of GDP contributed by industry, and particularly manufacturing industry, is declining. The second reason for believing that unemployment will fall over the long term is that this move out of industry will inevitably slow.

In Britain in the Eighties this process of deindustrialisation has been very rapid. The proportion of those employed in industry fell from 36 to 28 per cent of the workforce between 1981 and 1991. (In manufacturing, a narrower definition, employment fell faster still and is now well below 20 per cent of the workforce.) Some people believe that deindustrialisation has a long way to go. This has been most cogently argued by Richard Brown and DeAnne Julius in their prize-winning paper in the recent Amex Bank Review awards. They believe that employment in manufacturing could drop to 10 per cent of the total, or below, in most industrial countries in the next 30 years.

It is perfectly possible to accept their argument and yet see that Britain has gone further in the adjustment than most other countries. Manufacturing employment peaked, as a proportion of the total, as far back as 1956. In Germany the peak was in 1960, in Japan 1973. The decline, however, suddenly quickened in Britain in the Eighties. The collapse of

manufacturing employment now taking place in Germany (and probably soon to come in Japan) is very much akin to that Eighties British contraction.

Looked at in a long historical perspective, we may be approaching the end of the process of deindustrialisation - or at the very least be three-quarters of the way though it. Manufacturing employment will continue to shrink, but nothing like as quickly as in the past.

A third reason for hope regarding unemployment is the ability of private sector service industries to create jobs, in particular part-time ones. Total employment in Britain has been rising since last spring, far sooner than most economists expected, given the stage of the cycle. In the six months to the end of September Britain gained nearly 200,000 part-time jobs (and nearly 80,000 more people became self-employed), but there was a loss of almost 100,000 full-time jobs.

What is happening is less a recovery in jobs, than a very rapid shift to part-time ones. This process is highlighted in a paper by the investment bankers C S First Boston, which points out that we are seeing a work-sharing process: the number of working hours are being distributed among a larger number of people, with unemployment falling despite quite muted economic growth.

This is another trend in which Britain seems to be a pioneer. As long ago as 1973 we had a higher proportion of part-time workers than any other large developed country - 16 per cent. But the lead has increased: in 1992, even before this latest spurt, part-timers had risen to 23.2 per cent of the workforce, compared with 17.5 per cent in the United States, 20.5 per cent in Japan and 15.5 per cent in Germany. It would be surprising if this trend did not continue.

Finally, it is surely reasonable to expect economic growth to continue through the Nineties and beyond. Amex Bank argues in its latest review that the level of growth needed to cut unemployment in the developed countries is not very high: it ranges from 2.3 per cent in the US to 3.5 per cent in Japan. In other words, even substantially slower growth than has taken place since 1960 should be enough to hold down unemployment.

None of this means that unemployment will fall to the very low levels of the Fifties. Only in Japan has 'headline' unemployment been kept below 3 per cent, and if one allows for discouraged workers (typically married women who would like to work but do not seek it because of a combination of lack of opportunity and social pressures) Japan has real unemployment of nearly 10 per cent*. (On that basis, real unemployment in the UK is a little over 12 per cent.)

Nor does it mean that people will necessarily be able to work as long as they want to: many may find themselves working for, say, 25 hours a week and so technically be part-time when they would ideally like to work for 35 hours a week and technically be full-time. Nor does it mean that job security will be anything like as high as it was in the Fifties and Sixties, when employees could make the reasonable assumption that, if they wanted to, they could probably stay with their employer, full-time, until normal retirement age.

Nor - yet another qualification, I'm afraid - does it mean that people who are either unskilled or fail to have developed the basic self-discipline required by employers will find it easy to hold down jobs.

For all these reasons there will still be some unemployment. At a guess, come the early part of the next century, real unemployment (ie sensibly and honestly measured) could average around 5-6 per cent, a bit less in booms, rather more in slumps. We will still worry about it, and rightly so. But it will no longer be the grinding fear that it is now for far too many people.

* Source: Amex Bank Review, 24 January 1994.