Mark Carney has said the Bank of England will not raise interest rates until unemployment falls to 7% of the available workforce, with some important caveats attached.
But why 7%? This graph shows long term unemployment rates:
Unemployment was at or above 7% from 1979 until 1997, almost exactly. Now, Thatcher fixed that by creating incapacity benefit which finally delivered in statistical terms for New Labour, but the the point is 7% is high. And now that IDS is doing all he can to push people onto unemployment statistics and away from benefits, and the government is doing all it can to sack people, the chance of reaching 7% is low. That's why it's been said it will require 750,000 new jobs when the required fall is only 0.8% from the current ratio - and there are not, as this implies, 93 million economically active people in the UK.
But even then there would still be over 2.2 million unemployed people in the UK. Does anyone think that a 'natural' rate of unemployment? Or one we can afford, economically or socially? And if so, why?
I welcome an unemployment target, but this one is absurd for a great many reasons, not least because of the human misery that it implies it will tolerate.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Perhaps many more of the 750,000 will be removed from the count through their employment on zero hours contracts, Richard. We now know (as some of us have done for some while) that many, many more people are on these contracts than has ever been admitted, and most that are are under-employed.
Conveniently for the government, though, they don’t show up on the unemployment statistics. However, if you add the 10% of the employed who say they are under-employed to the current percentage unemployed you get a rather more accurate picture of the dire circumstances that many millions of people have to endure on a daily basis in flexible labour market Britain (or as Larry Elliot correctly put it earlier this week, the victims of the 21st century equivalent of 19th century labour exploitation).
I make no mention of promises to look into or take action against zero hours contracts by the person formerly known as “Saint” Vince Cable because we’ve consistently seen over the past three years that any such commitment from Cable results in almost zilch, or even less (he has become for all intent and purpose a human glove puppet for his Tory masters). Consequently, my assumption is their use will continue to increase over the remaining life of this government. Whether One Nation Labour has the balls to take action on something that is truly representative of a one-nation issue (i.e. employment rights) is another matter, of course.
Dob’t hold your breath on the last hope Ivan
Sorry . My comments should be concise , I meant I find it difficult to communicate concisely .
Good point, Richard. In the “full employment” era of the 1950s through to the early 1970s, 7% would have been seen as ridiculously high – indeed, as a return to the 1930s.
What the 7% target also misses is that ILO-definition unemployment is only one aspect of how much spare capacity there is in the economy: ideally, policy needs to take account of the number of people who want to work more hours but are trapped in part-time jobs due to inadequate demand. Also people who are inactive in the labour market because they’ve given up because no jobs seem to be available. And people who’ve taken involuntary early retirement again because no jobs seem to be available, self-employed people on very low incomes because they can’t get paid employee work at even minimum wage… the list goes on. Just focusing on ILO unemployment is a very crude way of conducting macro policy.
Howard
Agreed
The 7.8% figure disguises what I suspect to be enormous distress
And yet it is said there is no capacity in the economy
I consider that absurd – if it’s missing it’s due to lack of investment. But where’s the plan for that?
Richard
It didn’t strike me that the 7% figure was in any way proposed as an acceptable level of unemployment or the level at which we wish to maintain things.
Rather it came across to me as saying that unemployment is too high and new job creation is paramount and the Bank of England will not risk jeopardising new job creation by raising interest rates until it has fallen past a certain level.
With luck these ‘rules’ will give markets and employers confidence in the future of the UK’s interest rates, as it provides an insight into how it is going to change rather than simply waiting on the announcement each month.
Absolutely. There is no such thing as a ‘natural’ rate of unemployment, unless you believe in some economic theories without any empirical proof. The level of unemployment is always a political choice, and the neo-liberal elite like it to be high to suppress worker dissatisfaction. In the ’60’s it was only about 2%.
More importantly, how does this un-elected governor of the BOE suddenly have the right to make decisions based on non-monetary criteria, surely this is the domain of the UK Treasury – who seem economically deranged, but are at least elected?
No-one in this government was actually properly elected. The Tories had to combine with the LibDems to form a majority and then they promptly announced all their policies were invalid as they were formulated while not realising there was no money left to carry them out, a misleading fiction in itself. Then they did whatever they wanted to enabled by the LibDems backing them up. What they should have done was formulated new policies and gone to the people, the electorate, with them. If they’d done that and been elected on the basis of policies they subsequently went on to carry out, then you could claim this is an elected Treasury. As it stands, it isn’t. None of them should be there. This is a faux government with no mandate from the people to do anything at all. I don’t know why anyone takes any notice of them. They’ve got no business at all inhabiting the role of goverment.
Politely, that’s a load of tosh. The idea that parties get elected on the basis of specific mandates and are then authorised to carry out those mandates is simply wrong. In the UK the system is simply that whoever gets elected can do whatever they want with no oversight. That is the version of parliamentary democracy that we have ended up with. It is also why all politicians systematically lie at election time.
The 2 most striking examples that immediately spring to mind would be Tony Blair saying he would remain prime minister for a full third term during the 2005 election. Does that mean Gordon Brown had no authority to usurp him? And, more controversially, in 1997 the Labour government made a conscious decision to dramatically increase immigration, a policy the effects of which will not be known for several generations. Was it even mentioned in their manifesto? (source: http://fullfact.org/factchecks/net_immigration_UK_Daily_Telegraph_Guardian_Office_for_National_Statistics-2659)
Politicians don’t tell you what they are going to do: they tell you what they think the majority want to hear. That’s why we are all sick of the current version of democracy.
Roger ,
About 10 years back I went to a mates party and his family came over from Ireland .
I knew they were Catholics so was surprised to hear some of them talking highly of Ian Paisley . One chaps exact words were “He’s a good man ; he looks after his people” .
The current breed of professional politicians in Britain doesn’t seem to put Britain and Britons first .
A few weeks ago Richard was making it clear that an increase in politicians remuneration had to be tied to changing the job contract to make it exclusive so MP’s could no longer engage in outside work .
Mr Clegg has split allegiances between the UK and the EU . Surely this constitutes a breach of exclusivity too ?
A lot of what has gone on particularly with regards to the EU is imho rightly considered treason by many people over a certain age .
Respectfully, I do not agree
Candidly, I think the suggestion absurd
Richard ,
For sure it would be impractical to bar the likes of Mr Clegg from office – some things have to be left up to the electorate .
Is there any truth that people who have built up pensions rights while working for the EU , in order to avoid the risk of being deprived of their pensions :-
– have to abide by certain obligations after their term of office ?
– maintain a “duty of loyalty to the Communities”.
Are conditions like this common for other vocational pensions ?
Are Westminster MP’s pensions conditional on such undying loyalty ?
If true and exceptional it tells us a lot about the EU . There would also appear to be a very real conflict of interest here for a Westminster MP .
I think you may be fantasising here
I don’t think there is any evidence of this, at all
I see Tim is still preaching:
http://www.theregister.co.uk/2013/08/07/tax_avoidance_for_beginners/
And trolls believe him
Isn’t this figure of 7% determined by the mythology of NAIRU, that inflation and rates of employment are linked, as is supposed to be justified by the Phillips curve?
Professor Bill Mitchell refutes the myth, using Modern Monetary theory:
A key conceptual (theoretical) vehicle for challenging the dominant orthodoxy was to use the Phillips curve to show that a capitalist system augmented with a specific public sector design element could full employment with price stability.
As my colleague Randy Wray noted in a — Speech in 2011 — the concept of the Job Guarantee (that is, our work on employment buffer stocks):
… turned the Phillips Curve on its head: unemployment and inflation do not represent a trade-off, rather, full employment and price stability go hand in hand.
That is a major aspect of our theoretical approach as is the juxtaposition of unemployment and employment in a buffer stock framework.’
http://bilbo.economicoutlook.net/blog/?p=24744
Agreed!
Its a start, Richard. And who’s to say that the new Government in 2015 wont change that target from 7% to 6%, then 5%?
If that happened I would be pleased.
It is a start – you’re right
But I worry it is also tokenism
Seems to be a fairly straight forward diversion. There is a desire to retain the zirp policy, so they just tie it to unemployment, something they have no desire to reduce.
I think that it is wrong to say that there is no capacity in the economy to create new jobs.
We’re living in an age where workers need not be tied down to a desk to do work. Indeed when you consider that the premises of a business can often be a significant cost (if they’re renting, for instance) it can be useful to have the workforce distributed rather than gathered in one place.
And yet, there are probably many employers who continue to burn money on office space and a traditional style of working under one roof. The implication is that they don’t trust their workers to be productive at home or in a workspace that they can’t supervise. We may have all sorts of fancy gadgets that we didn’t have forty years ago, but there may well be room for improvement where working practises are concerned.
There’s also the potential for people to learn some skills related to these new fancy devices and become self-employed instead of seeing how many rejection letters they can rack up (though many employers do not actually reply except to interviewees).
I think there is massive capacity in the economy, for the record
Richard ,
When I in secondary school in the early eighties there was a popular opinion that due to mechanisation , automation etc that in future decades we would all have lots of leisure time .
It doesn’t seem to have worked out that way .
Did you think back then that there was a chance it would ?
Have things turned out how you expected ?
Keynes thought that would happen – that we’d get to leisure
He wasn’t right
He forgot the power of the rentier
And greed
As Richard says, without the rentier we’d be working less hours and have more time for each other – it’s quite a tragedy.
The faux government are expert at manipulating figures, here’s an example http://ilegal.org.uk/thread/7258/serious-flaws-governments-statistics?page=6&scrollTo=20177. If you want to scroll back and forth on that site, those that have the taste for figures will find many more, equally well illustrated and equally complex. Fiddle the figures the Coalition do, though, and this means effectively that they can summon up an unemployment figure of 7% more or less at whim irrespective of any real figure. What are these dark magicians going to produce from their hat, I wonder? Why be so circumspect about it? Of course, they’ve had months to plan all this and we’ve only just now had it foisted upon us so we mustn’t expect to tumble it right away.
Self-employment is extremely regulated. Many who regard themselves as self-employed are just not, according to the revenues definition of self employment.
But you forget that many are self-employed for one of two reasons; the most obvious being that they cannot find employment, the other that employers are frequently all too keen to persuade employees that they are better off self-employed without telling those employees that they, the employers, gain from the non-payment of employer’s NIC, sick pay and holiday pay or that their former employees make corresponding losses. And then there’s the Dickensian zero hours contract.
HMRC’s definition of self-employment makes clear that the employer is responsible for establishing who is and is not self-employed and is liable for any tax underpaid as a result of a faulty diagnosis. Unfortunately, HMRC is not exactly dilligent in its pursuit of those employers who land on self-employment status primarily for their own gain.
What we also have here is very good reason for millions of people enslaved to their mortgage repayments to actively wish and hope for high unemployment – as long it’s not they are unemployed… And a fair good few will continue to chide and vilify the unemployed people who have been forced to make that sacrifice as ‘scroungers’, whilst they themselves, via the banks and their Help to Buy mortgages and subsidised buy to let mortgages continue to ‘scrounge’ of the public themselves. Does that sound sick?
It’s the result of manipulation
It would seem so. I think I need to manipulate my spelling and grammar a bit more too 😛 That’ll teach me to type before lunchtime…
This is precisely the main issue, David -the mortgage god must be obeyed and people will sacrifice themselves and others to an almost Incan level in order to do so! The vilifying of the unemployed is a pure, unadulterated example of fascist scapegoating. The highly leveraged house ‘buyers’ need to feel significantly better off than those on benefits in order to justify this leveraging, because they are not, many want to see the unemployed/ill/vulnerable dragged into absolute poverty rather than kick over the mortgage god they worship. It’s a sad state of affairs and bodes ill.
The 14 signs of fascism.
1. Powerful and Continuing Nationalism – Fascist regimes tend to make constant use of patriotic mottos, slogans, symbols, songs, and other paraphernalia. Flags are seen everywhere, as are flag symbols on clothing and in public displays.
2. Disdain for the Recognition of Human Rights – Because of fear of enemies and the need for security, the people in fascist regimes are persuaded that human rights can be ignored in certain cases because of “need.” The people tend to look the other way or even approve of torture, summary executions, assassinations, long incarcerations of prisoners, etc.
3. Identification of Enemies/Scapegoats as a Unifying Cause – The people are rallied into a unifying patriotic frenzy over the need to eliminate a perceived common threat or foe: racial , ethnic or religious minorities; liberals; communists; socialists, terrorists, etc.
4. Supremacy of the Military – Even when there are widespread
domestic problems, the military is given a disproportionate amount of government funding, and the domestic agenda is neglected. Soldiers and military service are glamorized.
5. Rampant Sexism – The governments of fascist nations tend to be almost exclusively male-dominated. Under fascist regimes, traditional gender roles are made more rigid. Divorce, abortion and homosexuality are suppressed and the state is represented as the ultimate guardian of the family institution.
6. Controlled Mass Media – Sometimes to media is directly controlled by the government, but in other cases, the media is indirectly controlled by government regulation, or sympathetic media spokespeople and executives. Censorship, especially in war time, is very common.
7. Obsession with National Security – Fear is used as a motivational tool by the government over the masses.
8. Religion and Government are Intertwined – Governments in fascist nations tend to use the most common religion in the nation as a tool to manipulate public opinion. Religious rhetoric and terminology is common from government leaders, even when the major tenets of the religion are diametrically opposed to the government’s policies or actions.
9. Corporate Power is Protected – The industrial and business aristocracy of a fascist nation often are the ones who put the government leaders into power, creating a mutually beneficial business/government relationship and power elite.
10. Labor Power is Suppressed – Because the organizing power of labor is the only real threat to a fascist government, labor unions are either eliminated entirely, or are severely suppressed.
11. Disdain for Intellectuals and the Arts – Fascist nations tend to promote and tolerate open hostility to higher education, and academia. It is not uncommon for professors and other academics to be censored or even arrested. Free expression in the arts and letters is openly attacked.
12. Obsession with Crime and Punishment – Under fascist regimes, the police are given almost limitless power to enforce laws. The people are often willing to overlook police abuses and even forego civil liberties in the name of patriotism. There is often a national police force with virtually unlimited power in fascist nations.
13. Rampant Cronyism and Corruption – Fascist regimes almost always are governed by groups of friends and associates who appoint each other to government positions and use governmental power and authority to protect their friends from accountability. It is not uncommon in fascist regimes for national resources and even treasures to be appropriated or even outright stolen by government leaders.
14. Fraudulent Elections – Sometimes elections in fascist nations are a complete sham. Other times elections are manipulated by smear campaigns against or even assassination of opposition candidates, use of legislation to control voting numbers or political district boundaries, and manipulation of the media. Fascist nations also typically use their judiciaries to manipulate or control elections.
From Liberty Forum
http://www.libertyforum.org/showflat.php?Cat=&Board=news_constitution&Number=642
109&page=&view=&sb=&o=&vc=1&t=-1
“When I in secondary school in the early eighties there was a popular opinion that due to mechanisation , automation etc that in future decades we would all have lots of leisure time .
It doesn’t seem to have worked out that way .
Did you think back then that there was a chance it would ?”
I think that it is a matter of urgency, that should happen in the future! The enormous capacity to produce due to technological innovation and new working practices means that working hours could be significantly cut, say to 25 hours per week and still more than provide for everybody’s needs! Indeed, for the sake of the environment and our precious resources, not to mention the beneficial effects it will have on our health and well-being, it has to happen!
However, due to massive anounts of debt coupled with the desire for ever greater profits (or calling it by its proper name: naked greed) means we are stuck in the destructive “growth forever” mode in order to make ends meet! We must have more growth, use more resources and produce more than we could possibly need in order to maintain the voracious greed of finance and capitalism!
And until we take back democracy from the banks and the coporationsm it will ve ever thus!
Should read: “And until we take back democracy from the banks and the coporations, it will be ever thus!”
NEF has done some pioneering thinking on this – for which they have been much ridiculed but which has a lot going for it