The return of full employment – part 1

Steven Hail

How the unemployed became a tool to discipline workers and keep wages down, and why it doesn’t have to be this way

The evidence that unemployment has a significant and long-lasting impact on wellbeing is overwhelming. It goes far beyond the purely financial consequences of not being able to find paid work. It is one of very few life events to which most people never fully adjust. Loss of selfesteem, identity, interaction and a sense of purpose, alongside a crushing uncertainty about the future which can become hopelessness. These are corrosive to mental health, family relationships and local communities. Unemployment has been compared to an epidemic, with consequences which can last a lifetime.

It is within the power of national governments to end this epidemic. They have done it before, with involuntary unemployment virtually eliminated for thirty years after 1945. But in the mid-1970s, aided by geopolitical factors, the unemployment epidemic escaped from the economics departments of a number of (mainly North American) universities. It took the form of a virus named monetarism, and since then governments have chosen to live with it rather than to invest in a return to full employment.

There are good reasons for thinking that the permanent elimination of this virus lies in the development and implementation of a federal Job Guarantee. Proposals for a Job Guarantee, as an effective vaccine against involuntary underemployment, have been around for many years, with more recent versions described by economists such as William Mitchell in Australia, and Pavlina Tcherneva in the U.S. and their colleagues. Large-scale employment programmes sharing some of the features of a Job Guarantee have been introduced successfully in India and (temporarily) in Argentina. Almost all governments have run programs of one kind or another with the aim of supporting the young or longer-term unemployed. Tragically, none have guaranteed all those wanting to work the right to a socially productive and rewarding job, at a fair wage and with good working conditions, for as long as that job is needed. As a result, in Australia, as in other countries, the unemployment epidemic has been allowed to persist for more than four decades.

Imagine instead that Australia had in place a locally managed, but federally funded Job Guarantee. Anyone looking for employment could turn up at their local Job Guarantee office, see a counsellor and select a suitable opportunity from the local ‘job bank’. The job bank would be based on a federal template but amended by local authorities in consultation with their communities to fit local needs. Participants might work in a local community garden; on environmental restoration projects; might be involved in mitigating bushfire risks; or could be helping in schools, libraries or local charities. They might be supporting the elderly to remain living independently. They could be working in local recycling centres. They might be participating in community arts and cultural projects. They might be taking advantage of opportunities to train in areas of local skill shortages. The range of opportunities would depend on the local community.

The job bank would always be available to those who needed it, or who just wanted to work in activities supporting the local community and environment, with good working conditions and at a fair minimum wage. But a sufficient number of activities would be scalable so that the program could easily expand during an economic downturn and contract when the economy was booming. Done correctly, this would have eliminated both involuntary unemployment and underemployment, and helped match those working in the pool of Job Guarantee workers with vacancies in the private sector (and non-Job Guarantee public sector) as those opportunities arose.

Instead, for more than forty years, job seekers have been left to compete with each other for jobs which have always been in short supply. Those not fortunate enough to find a vacant seat in a great game of musical chairs are described as ‘leaners’ rather than ‘lifters’. All they are offered is a harsh and punitive regime of searching for non-existent jobs, going on poorly designed training courses and being forced onto often pointless work-for-the- dole activities.

Perhaps the best month to have been looking for a job in Australia in the last forty years was February 2008, when the unemployment rate dipped very slightly below 4.0% of the labour force – the only time that this has happened since the mid-1970s. Even then, there were about 450,000 people actively looking for work and not enough suitable jobs to go around. And although Australia officially escaped a recession during the Global Financial Crisis, the number of unemployed persons was about 50% higher than this by June 2009. Australia’s unemployment rate has been nowhere near its 2008 level since.

However, we really should not be focusing on the unemployment rate any longer, given the state of our insecure twentyfirst century labour market. It is a wholly inadequate measure of the unmet need for jobs, and has been at least since the millennium, when the number of underemployed workers edged above the number of officially unemployed for the first time. To be officially unemployed, one must be seeking work, be available to start right away, and currently have no paid employment at all. One hour of paid employment is enough to disqualify anyone from the statistic, regardless of how much they need more hours. In a country where more than 30 percent of those in work have part-time jobs, and where underemployment has been decisively above unemployment for nearly two decades, we ought to shift our gaze.

Most analysts think the underutilisation rate, which combines unemployment and underemployment, is a superior measure of the success or otherwise of employment policy, and it tells a sorry tale.

Australia’s underutilisation rate has been below 10% of our labour force only twice since 1982, and then only marginally and fleetingly [1]. Essentially, for four decades we have failed to create a sufficient number of jobs to meet the needs of those looking for work, leaving hundreds of thousands searching for jobs that do not exist, and millions in insecure employment. And all the while, politicians of both major parties have boasted about job creation, occasionally even claiming to have achieved full employment. They have tolerated unemployment while at the same time implementing and then maintaining a punitive approach to the unemployed, as though the main problem was with the motivation of those looking for work. It was not and it is not. The problem is a shortage of accessible jobs and the cause of this problem is the failure of successive governments to ensure those jobs are available, itself a consequence of an adherence to an outdated and discredited economic paradigm.

It was not always this way.

On the issuance of its White Paper in 1945 [2], the Commonwealth Government accepted responsibility for the achievement and maintenance of full employment.

Meaning “a secure prospect unmarred by the fear of idleness and the dole”. The use of unemployment as a mechanism to intimidate workers and depress real wages was to be a thing of the past. The Commonwealth Employment Service was established in the following year to support those looking for work, to liaise with local employers and to analyse and react to any skills shortages. By 1948, the Government could with justification claim a real commitment to article 23.1 of the newly proclaimed Universal Declaration of Human Rights, which states “everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment”.

There followed the most successful decades in Australian economic history. The economy grew faster than ever before or since. Inequality and relative poverty continued to fall. Genuine full employment was maintained for thirty years, with the unemployment rate typically between 1 and 2%, and a slight uptick above 2% in 1962 almost costing the Menzies Government a federal election. By 1974, Australia was a country with Scandinavian levels of inequality. And for a generation, workers shared in the benefits of rising prosperity through increased real wages, without the threat of the sack leading to prolonged unemployment and poverty. There were plenty of jobs for the young and long-term unemployment was insignificant.

Then all this was given away, when it need not have been.

As in many other countries, Australia’s politicians reacted to an inflation spike caused by the efforts of a cartel of oil exporting nations to drive up the price of oil. They abandoned our long national commitment to full employment and embraced monetarism and neoliberalism in its place. They chose to react to a problem in the world energy market by using mass unemployment to drive down wages, and recession as a blunt implement to attack inflation. In place of full employment, policy makers borrowed Milton Friedman’s notion that there was a “natural” rate of unemployment which could only be reduced by policies that increased inequality, shifted bargaining power from labour to capital, and punished the unemployed.

Later, essentially the same concept was called the “non-accelerating inflation rate of unemployment” (NAIRU), and the use of unemployment to discipline workers and keep real wages down became permanent government and central bank policy [3]. The policy makers were persuaded that pushing the unemployment rate too low would be unsustainable and inflationary, and that 5% or even 8% unemployment
could legitimately be described as “full employment”. This is a very attractive notion to any politician who wants an easy life. It means that whatever the official unemployment rate happens to have been in the recent past can be defined as full employment. It means that policies to favour major donors and political insiders, and which appear to shift the blame for unemployment onto the unemployed themselves, can be portrayed as sound common sense.

References
1. http://www.ceicdata.com/en/australia/underemployment-rate/labour-force-underutilisation-rate
2. Commonwealth of Australia (1945), Full Employment in Australia. Retrieved from
http://www.billmitchell.org/White_Paper_1945/index.html
3. (a) https://www.rba.gov.au/education/resources/explainers/pdf/nairu.pdf
(b) https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.11.1.93 Time to ditch the NAIRU
(c) http://www.fullemployment.net/publications/wp/2008/08-09.pdf
Labour underutilisation and the Phillips Curve