Post-war governments committed themselves to maintaining ‘full-employment’. According to economist John Maynard Keynes, this meant the state ensuring levels of ‘aggregate demand’ remained high. But governments also accepted that there would be ‘trade-offs’ – as the labour market tightened, inflation would start to rise and so on. Economists tried to calculate the ‘non-accelerating inflation rate of unemployment’ (NAIRU).
But as well as being dependent on an interventionist fiscal policy, the prosperous economic conditions of the post-war years also enabled trade unions to become much stronger and demand a greater share of profits, so by the mid-1970s the cost of maintaining full employment was being regularly reflected in double digit inflation as employers passed on the costs of higher wage bills to consumers. After Labour governments failed to impose a ‘social contract’ on unions to limit wage rises, Margaret Thatcher abandoned the commitment to full employment and ‘crashed’ the economy. Inflation and wage demands fell but unemployment rose to levels not seen since the inter war years.
Things couldn’t be more different today. As latest labour market figures continue to show, unemployment is at its lowest level since 1975 and more people than ever are working. It’s true that the bargaining power of unions has been heavily shackled – strikes are at an all-time low, with Draconian management practices meaning workers are often frightened to act, but also, in the economy of the 21st century, the concept of ‘full employment’ as an indicator of social welfare is no longer useful.
In the post-war economy, full employment was generally conflated with male full-time employment, where it was assumed that having a job generated the income necessary to provide basic comforts and look after family members. Now, it’s predicted that the number of employees earning the Minimum Wage will double to more than 10% of the UK workforce by the end of this parliament. This has resulted in a new category of ‘working poor’, people in full time work who still qualify for benefits.
Secondly, the labour market doesn’t ‘tighten’ in the way it used to (by people leaving the dole queue and exchanging welfare benefits for a pay cheque). The new types of ‘24/7’work, though invariably poorly paid and insecure, allow opportunities for different types of people to temporarily enter the labour market. For example; there’s more part-time work for students and for those (generally women) with caring responsibilities. And of course, there have been huge supplies of additional labour (East European in particular, but not exclusively).
Thirdly, while most people may be able to get employment if they want to (though we should not ignore the much higher rates of unemployment in particular areas and amongst certain groups) it’s often not the job they want, doesn’t fit the qualifications they have or always give them the hours they want. So while unemployment may be low, the amount of ‘underemployment’ may be much higher.
Of course, the supply of labour isn’t endless, and it may well be that market forces begin to push up wages. But economists now continually revise their expectations about NAIRU. It’s also the case that the ‘hollowing out’ of ‘middle jobs’ because of automation and AI is leading to creation of more low-skilled, low-paid workers, which trade unions find very difficult to represent or establish national conditions of employment. As well as restoring trade union rights and trade union power, it’s likely that a strong ‘Labour State’ would need other extensive powers. It could implement a new type of social contract where wages kept up with inflation and increases in productivity and rather than just raising the minimum wage and guaranteeing hours, it could also consider replacing the failing universal credit system with some form of Universal Basic Income for everybody.