What would full employment look like in contemporary Britain? Amna Silim 27 th November 2013

Outline The new case for full employment The evolution of British employment policy Full employment in the mid 2000s The potential trade-offs with full employment Elements of a new definition of full employment Policy directions

The new case for full employment 80 per cent employment rate – alongside very low unemployment rate Additional 3.5 million people would need to be in work

The evolution of British employment policy 1945 to mid-1960s: post-war consensus on full employment / demand management Late 1960s and 1970s: breakdown of the post-war consensus – rising inflation, oil shocks 1970s / 1980s: new orthodoxy – low and stable inflation 1990s / 2000s: inflation focus + employability Late 2000s: more focus on wider labour supply but rooted in employability

The long-term picture

The new case for full employment

Why full employment? Labour market inclusion Family incomes and poverty Public finances

Benefits of full employment If higher employment forced up real wages by 2 per cent in 2013/14 (instead of the 1.5 per cent drop predicted by OBR) –In 2013/14 tax credit and benefit spending would be £1.1 billion lower –Income tax and national insurance receipts would increase by £12.5 billion higher

Benefits of full employment Increasing the employment rate from 71.5 per cent to 73 per cent –Net gain to the exchequer of £5.5 billion –Spending on tax credits would fall by £2.4 billion a year –Income tax and national insurance receipts would rise by £3.1 billion

International context (1)

International context (2)

‘Full employment’ in the mid- 2000s

‘Full employment’ in 1973 and Able-bodied, working-age men working full-time Proportionally fewer men in work Women in unpaid care work or working part-time Many more women in paid work, still doing most caring Few workless households Many more workless households Good spatial distribution of jobs Worklessness more spatially concentrated

‘Full employment’ in 2006 Strong employment performance among prime-age men Employment gaps fell - but significant gaps remained: –People with particular disabilities –Some people from an ethnic minority background –Older women –People with few / none formal qualifications –Parts of the North, Wales, Northern Ireland, London 4 million+ working-age adults remained on out-of-work benefits

Regional employment trends

Northern Ireland employment Northern Ireland 2006 –Female Employment: 61.3 per cent (UK 66.9 per cent) –Male employment rate: 74.3 per cent (79.0 per cent) –Inactivity rate: 27.2 per cent (23.0 per cent) 2013 –Older employment rate: 61.7 per cent (NI average 67.3 per cent) –Youth employment rate: 40.9 per cent (NI average 67.3 per cent)

The potential trade-offs of full employment

Inflation Relationship between inflation and unemployment very weak over the last 20 years External factors (e.g. commodity prices) have been more important for determining inflation

Productivity Good evidence for an employment-productivity trade-off Higher employment rates means more people with relatively low productivity in work, often in low- productivity sectors But weak productivity growth in domestic sector likely to mean weak wage growth, poor job quality

Elements of a new definition of full employment

Key components Target employment as well as unemployment Households as well as individuals –Tackle household worklessness –Dual-earner household strategy Recognise people’s roles as parents, carers and active citizens Opportunities for learning esp. for young people

Do we need a target? Technical difficulties over definition Post-war governments got there without a target Politicians unlikely to adopt until close to achieving But need an answer to ‘what do you mean by full employment?’ Full employment = low unemployment rate and 80% employment rate

Policy directions Target monetary policy on job creation Rediscover job creation / labour demand as well as supply / employability Prioritise social investment in public spending Stronger employment support and job creation for specific groups Stronger counter-cyclical options e.g. more focus on job retention in future downturns