Now is the time to debate full employment

Full employment is not fantasy economics, but debate is squashed by economic complacency and fatalism

A Labour leadership striving to re-earn the electorate’s trust in its capacity to manage the public finances wisely, restless mid-term Conservative backbenchers fearing they are sliding towards electoral defeat, a recession-wearied public agitated about welfare bills and a stubbornly high deficit, and a welfare secretary seeking to focus public debate on the alleged failings of claimants. Ring any bells?

These familiar circumstances confronted the last mid-term Conservative chancellor two decades ago. Ken Clarke’s response – to the surprise of many – was to remake the argument for full employmentand a strong welfare state as key pillars of a properly functioning market economy. How times change.

True, aspects of today’s context are very different. The current downturn is deeper and longer, the public’s anti-welfare mood harsher, one-nation Toryism weaker, and Labour’s poll lead far smaller. Yet Clarke’s response serves as a reminder of how the politics of full employment have ebbed and flowed – and how for many years, even post-Thatcher, they weren’t the sole preserve of any one party.

It’s in Labour’s genes to believe this issue is its own. Hugh Gaitskell led the charge, arguing that full employment meant guaranteeing unemployment didn’t rise above 3% – a level then thought to be inconceivably high (today’s figure is nearly 8%). But this terrain was fiercely contested by the likes of Rab Butler, who insisted that Tory manifestos be committed to maintaining full employment as the “first aim of a Conservative government”.

Given this heritage, the current paucity of debate on the subject speaks volumes. In no small part it can be put down to the troubling mix of economic complacency and fatalism that dominates much of today’s economic discourse.

The complacency stems from the fact that over recent years the UK jobs market has performed better than many predicted with unemployment rising less than expected given the fall in output. That’s true and important – but also a partial account.

It’s not just that it glosses over the 2.5 million unemployed and 3 million under-employed. It’s also that cheery talk of “record numbers of jobs” ignores the 1.8 million increase in the adult population since the recession, so it greatly understates the true “employment gap”: nearly a further one million jobs are required simply to get back to the employment rate of 2008.

Nor does this sanguine view register that low unemployment isn’t essential just for the sake of the workless – those with jobs desperately need it too. In the post collective-bargaining era, a tight jobs market – where employers chase applicants as much as the other way around – is the best wages policy available to low and middle earners.

High unemployment, as well as ruining individual lives, destroys our fiscal health. High employment restores it. To recover from our current crisis and then meet the costs of an ageing society – without eviscerating support for the young and those of working age – is going to require major increases in the numbers working.

By way of contrast, those of a fatalistic mindset believe that the UK is afflicted with such intractable problems that to cast ahead to the possibility of full employment is to indulge in fantasy economics. Those drinking at the well of economic pessimism see an economy hobbled by zombie banks, debt-drenched households, fiscal austerity, and a somnolent export sector. It hardly looks poised for a jobs boom.

This gloom – though rooted in reason – can be overdone. For starters, the policy environment is shifting. You don’t have to subscribe to current Carney-mania to recognise that the imminent arrival of the new Bank of England governor marks the possibility of a significantly extended period of expansionary policy, with future rises in interest rates linked to lower unemployment.

And only the economically paranoid would discern inflationary risk emerging from our labour market any time soon – indeed, the flip side of the deep slump in wages is that job creation could be surprisingly strong when demand finally recovers and the gaping output gap closes. Nor should we downplay the potential impact of sensible employment measures – like the Future Jobs Fund – which had real success before being scrapped.

Getting back on the path towards full employment, even if it’s a painfully long one, will require different – and deft – policy choices that avoid the pitfalls of complacency and fatalism. Some of the elements are likely to involve an expansionary macro-policy tempered by measures that puncture potential asset bubbles; a revamped childcare system that makes it worthwhile for both parents to work; and tax reform that makes hiring labour more attractive and sitting on cash piles less so.

A return to the postwar creed of high and stable employment can’t solve all our woes. It won’t magically reverse the rise of insecure, low-paid work. Nor will it prevent whoever wins the next election from having to make the sort of unpopular decisions on spending that the Labour leadership began to grapple with last week. But make no mistake: it is a prerequisite for advancing progressive causes in the decade ahead – and it’s our best means of avoiding austerity without end.

Which is why you might expect a vibrant debate about it. That’s something that former chancellors of both parties would have been entirely comfortable with.

This post originally appeared on the Guardian