Jobs

Full employment

The challenge

Full employment doesn’t just mean very low or zero unemployment, it means an economy in which ordinary working people have a direct stake in economic growth.

In the 20th century, rising wage levels[26] allowed a downtrodden workforce getting by on subsidence pay to develop into a mass middle class getting on with ever greater levels of disposable income. By rising broadly in line with economic growth, the wages of ordinary working people effectively made them shareholders in the market economy.

It was a far from smooth process, of course. The economic record is scarred by periods of mass unemployment and, in the latter part of the century, the emergence of a culture of long-term welfare dependency. Yet, for the ever-increasing numbers of working people, having a job was the key to rising personal prosperity.

Wage stagnation

However, something has gone wrong. Even before the credit crunch, there was clear evidence of stagnation in median wage levels.

The first signs of trouble were seen in America. Statistics show that in the post-war period, median incomes grew almost exactly in line with GDP per capita. Then, from 1973, median income growth began to fall behind. Though GDP per capita had almost doubled in size by 2007, median incomes rose by just a quarter over the entire period.[27]

For obvious reasons, this is sometimes referred to as the ‘Great Decoupling’.[28]

Though more recent in origin and less clear cut, there are signs of a decoupling in Britain, too. Since the 1990s, we’ve seen a growing gap between productivity growth and male median earnings. In the five years preceding the recession, when the UK economy grew at an annual rate of about two per cent, median earnings actually fell slightly.[29]

Similar patterns can be seen in other developed nations.[30], [31]

Disappearing job opportunities – especially for young people

The problem isn’t just with wages. The jobs that pay them are also under threat.

Obviously, the recession has had a hugely negative impact on job creation at all salary levels, but, even before the credit crunch, there is evidence both in the UK and elsewhere of a hollowing out of job opportunities in the middle of the income range.[32], [33], [34] This phenomenon is known as the ‘Hourglass Economy’, and combined with the Great Decoupling it represents a serious long-term threat to the prospects of ordinary working people.

The problem is especially acute for the young. Youth unemployment, which had been in decline for most of the 1990s, began to rise shortly after the Millennium. By 2010, the youth unemployment rate was almost twice what it was ten years previously.[35] The same period saw wage levels for young people not only stagnate, but decline.[36], [37]

Our response

While other countries have experienced a jobless recovery from the recession or no recovery at all, Britain’s return to economic growth was preceded by a return to employment growth. We can take heart from this, but must recognise that it is only the beginning of what needs to be achieved.

Full employment must be a core objective of British economic policy – and this means a lot more than achieving the technical definition:
  • Employment growth needs to be strong enough not only to eliminate existing levels of unemployment, but to make in-roads into other forms of worklessness – above all welfare dependency. Welfare reform is not within the scope of this manifesto, but the efforts currently being made to push people out of dependency must be matched by the pull of expanding opportunities for ordinary working people.
  • Youth unemployment must come down alongside overall unemployment – and more young people should be able to access training and gain qualifications while in work and as an alternative to full time study.
  • We need to encourage and be ready for all new sources of labour market participation – such as the increased number of older workers as the average retirement age goes up; furthermore, whatever the level of immigration, all economic migrants to this country should be in work and not on benefits.
  • Above all, full employment must give workers a full stake in Britain’s future prosperity – through wages that rise in line with economic growth.

New measures of economic success because GDP growth is not enough

When George W Bush was US President, nearly two-thirds of all the income growth in the American economy from 2002 to 2007 went to the richest one per cent of households.[38] Under Barack Obama this has changed – in the wrong direction. The proportion of GDP growth from 2009-2012 accruing to the same group of richest households was 95 per cent.[39]

GDP is vitally important, but we clearly need other prominent measures so that governments can be held accountable for the fortunes of ordinary working people as well as those of the economy as a whole.

It is said that ‘what gets measured, gets done’ – that’s not always true, but we should at least aim economic policy in the right direction.

Therefore, we propose:

  • A new measure of median wage growth, which would be given equal billing to GDP growth.
  • A supplementary GDP measure that excludes the richest one per cent of households.
  • A new index of personal taxation that calculates the combined impact of taxes on income and essential consumption – including Income Tax, National Insurance and VAT, plus the offsetting effect of pension tax relief (see chapter 3).
  • A new definition of poverty which doesn’t record stagnation in median household incomes as an improvement – which, absurdly, is what the current system does.
  • In addition to these income-based indicators, we also recommend the development of a better range of wealth-based indicators with the specific purpose of monitoring progress on home ownership and savings among ordinary working people – especially those in younger age groups.

A jobs-first taxation policy

One way of boosting household incomes is redistribution through the tax and benefits system. However, that option has pushed our national finances to the edge of insolvency and can go no further. The new leftwing solution is ‘redistribution’[40] – non-fiscal measures like rent controls that are supposed to even things up, but which do more to distort incentives and restrict choice than conventional redistribution.

A better way forward is to raise the productivity of ordinary working people so that they can command higher wages in the market place as a result of the economic value that they create. That way they can succeed on their own merits, not as a result of some fix engineered by the state that does nothing to make people economically stronger in themselves.

The obvious starting place is the taxation and regulation of employment, which must be reformed to boost the value of workers – especially young workers – in the economy.

Therefore, we propose:

  • To make the phasing out of Employers’ National Insurance Contributions – a direct tax on jobs – our top tax-cutting priority.
  • We should begin by eliminating the tax for all under-25s on the minimum wage – extending the tax cut up the age range and income scale as resources allow.[41]
  • The second tax-cutting priority should be to raise the threshold on Employees’ National Insurance Contributions – to bring NI into line with the Income Tax thresholds that the current Government has raised in order to boost work incentives and boost the incomes of ordinary working people.
  • Tax credits have a role to play, but in doing so they effectively subsidise low pay and redistribute resources from employers who do invest in a properly paid and motivated workforce to those who don’t: better targeting and greater transparency is required to deal with this unintended, but damaging, side-effect.

A jobs-first regulation policy

Unlike top earners in the private and public sectors, ordinary working people have shown commendable pay restraint during the economic downturn – therefore a new deal on employment regulation should be about reducing the bureaucratic cost of employing workers and not the bargaining power of workers in market place.

While the tax burden that the state imposes on employers is too high, it is at least restricted by the fact that the spending of each department and agency has to be approved by one central point of control i.e. the Treasury. There should be a similar point of control to limit the overall bureaucratic burden that the state regulation places on employers.

Therefore, we propose

  • An Office for Regulatory Responsibility which would independently audit the impact of all government regulation on employment and self-employment.
  • A transparent and easily understandable ready-reckoner would be devised for quantifying the burden of red tape on typical businesses in different economic sectors.
  • This ready-reckoner would be used to set a series of indicative ‘time budgets’ for the total regulatory load placed by each government department on different types of employer – with special reference to the small businesses and the self-employed (who are the creators of most new jobs).[42]
  • The Office for Regulatory Responsibility would have the legal power to block any new regulation that breached the relevant time budgets – thereby requiring departments and agencies to get rid of old regulations before imposing new ones.
  • In place of complex regulation, government should consider a straightforward ban on bad employment practices such as zero-hours contracts that prevent employees from working for anyone else;[43] however, careful judgments are required here – for instance, a blanket ban on all zero-hours contracts would close-off employment opportunities for people unable to commit to regular working hours.[44].
  • To promote good employment practices, we need a much better system of carrots as an alternative to the stick of regulation: Government should therefore work with employers and unions to reward best-practice through high-profile kite-marks on key issues like zero-hours contracts, the living wage and the payment of interns.

Trade union reform

Trade unions have a hugely important role to play in helping ordinary working people – not through the industrial strife of the past, but by providing a range of services to their members such as legal advice, training, insurance, child care and healthcare. Those benefiting could and should include the growing number of self-employed people – for whom the old class-war rhetoric of bosses versus workers holds little attraction.

In the private sector, unions have worked closely with employers to help guide British industry through the deepest recession since the war. The jobs-led recovery – in which more than two million new private sector jobs have been created since 2010[45] – is a testament to what responsible trade unionism can help achieve.

It is a different story in the public sector, where since 2010 the number of days lost to strike action is seven times the level in the private sector.[46] Public services have been disrupted and ordinary union members have lost pay despite the fact that in many cases the majority of union members did not vote in favour of strike action at the ballot box.

Therefore, we propose:

  • That the right to strike must continue to be protected in law, but also recognised as the special privilege that it is (taxpayers, for instance, aren’t allowed to strike if they think they’re getting a raw deal).
  • Any strike action that does take place should have the backing of a minimum threshold of union members not just of those voting in strike ballots; furthermore ballots should only be used to give approval for a specific schedule of strike action within a time-limited period – i.e. there should be no ‘blank cheques’ for indefinite disruption.
  • Measures to boost democratic participation in local and general elections (see chapter 5) – such as internet voting – should, where possible, be extended to help people participate in trade union democracy.
  • Ministers should actively investigate ways in which the power of government can be used to help unions provide useful services to their members – for instance, by providing financial guarantees for bulk purchase agreements.[47]

A new deal on immigration

We need to stop talking about immigration as if it is all the same thing – with the same costs and benefits for everyone. This is manifestly untrue. Different kinds of immigration have markedly different impacts on different parts of the British population.[48]

While arguments about the size of the overall net economic benefit of immigration rumble on, we believe government policy should encourage immigration when it is to the advantage of Britain’s ordinary working people and discourage it when it isn’t.

Therefore, we propose:

  • That Britain regains full control of its borders – in particular, as a top priority in any renegotiation of the terms of Britain’s membership of the European Union (or by withdrawing from it altogether).
  • A points-based system should be used to prioritise the immigration of workers with skills in short supply; assessments would be made by the same local bodies placed in charge of skills budgets (see below) – whose first duty would be to maximise the supply of skills from British citizens.
  • New immigrants would be required to purchase their own health and welfare cover through a system of social insurance – to which their employers would also contribute.
  • Full access to public services, benefits and tax credits would have to be earned – with access dependent on reaching a threshold level of tax contributions.
  • The squeeze on ‘benefits tourism’ would allow a less restrictive policy on visas for tourists and foreign students – greater numbers of which would be a boost to our economy and British ‘soft power’.
  • While most ordinary working people are fully exposed to the competition that comes from migrants, the same is not always true further up the income scale – where various professional restrictive practices act as a barrier; given the general enthusiasm that Britain’s ‘top people’ tend to have for liberal immigration policies, they should be invited to contribute ideas to a deregulatory programme to open up their professions to the full benefit.

A major resource shift to vocational education

As well as reforms to the taxation and regulation of employment, we need a complete re-evaluation of the way that government policy directs investment in education and infrastructure – two areas that are of crucial importance in determining who benefits from economic growth.

The massive expansion of higher education has strengthened the position of well-paid knowledge workers and the higher professions. However, the stagnation of middling incomes (see above) would suggest that the benefits to ordinary working people are not nearly so clear. Forcing ever larger numbers of people through the ‘degree mill’ just so that they can access trades and professions that used to be open to non-graduates is of dubious value – especially at a time when graduate starting salaries are falling.49

The current system of loan-based student finance privileges academic, and pseudo-academic, education over vocational pathways. There is little incentive for universities and colleges to provide new, cheaper and more accessible forms of higher and further education. Furthermore, these institutions face no direct financial risk if their products fail to improve the future employability of their students.

The tripling of tuition fees has pumped new resources into tertiary education – but, while taxpayers and students bear all the risk, there is little sign of the promised savings to the public purse[50] or of the competitive and innovative education market that we were promised.[51]

In order to create the right incentives for producers and consumers alike, a complete overhaul of student finance is required.

Therefore, we propose:

  • To replace the current system of tuition fees and loans – but not with a graduate tax, which would also fail to create the right incentives (while giving the state too much power over the universities).
  • Instead, we would legislate for a third option – in which graduates pay a commission to their university on their earnings for a fixed number of years and/or up to a fixed total amount.[52]
  • The commission would only be payable on earnings above a pre-set threshold – corresponding to the additional earning power made possible by the training or education in question.
  • Unlike the current system in which money is received upfront regardless of outcome, institutions of further and higher education would thereby bear the risk for the financial value of the courses they offer.
  • The system would be administered through deposit accounts set up for the purpose – and the only involvement of the tax system would be to verify that income had been properly declared.
  • The enormous cost of underwriting student loans and providing other forms of support for the current system would be re-invested in the expansion and refinement of skills-based vocational education, with particular emphasis on access to in-work training and qualifications.
  • The process of devolving control over skills budgets to local decision-making bodies should be accelerated – so that all allocations are made on the basis of local knowledge of local economic needs.
  • In cities – and elsewhere – control of skills funding would be an integral part of the decentralisation of political power to elected mayors (see chapter 5).
  • Providing ordinary working people with the skills and knowledge they need to prosper in the modern world is a task of great importance, but we must also uphold the ideal of academic excellence for its own sake: in reforming the funding of higher and further education a portion of the savings should be used to endow a national system of scholarships for gifted students – especially those from disadvantaged backgrounds.

Prioritise infrastructure investment that boosts local productivity

There are crucial decisions to be made on infrastructure investment, too. In providing direct and indirect support to major projects, serious questions need to be asked about who benefits. Priority must be given to investments that raise the productivity – and therefore the employment prospects – of ordinary working people.

At the same time, government support should be shifted away from infrastructure designed to facilitate the offshoring of jobs and the concentration of economic benefits in the hands of a privileged elite – who should pay for their own global networks.

While a timely and strategic sense of direction is required on key items of infrastructure such as airports, governments must stop promoting expensive mega-projects whose main purpose is to secure a medium-term boost to economic growth at the long-term expense of taxpayers, commuters and utility customers. This is a backdoor, debt-funded, economic stimulus of the most irresponsible variety – and it has no place in 21st century Britain.

Therefore, we propose

  • That all public infrastructure investments would be subject to a long-term value assessment using objective criteria applied consistently across the board – there must be no more special treatment for political vanity projects or ‘buy now/pay later’ schemes designed as expensive temporary props to economic growth.
  • Risk and optionality[53] will be a major part of these new criteria – thereby shifting policy away from the support of inflexible do-or-die mega-projects and towards a localised, modular approach in which successful projects can be replicated elsewhere while failures are chalked- up to experience before huge amounts of money are wasted on them.
  • Local authorities and other interested parties would have a legal right to contest central government infrastructure policies if they can make a case that alternative investments would achieve better value for money; claims would be adjudicated by an independent panel.
  • A fair competition test should also apply to the end-use of new infrastructure – i.e. government policy must prioritise open networks that support a competitive market of service providers and not the creation of ‘natural’ monopolies.
  • Government should not make long-term, upfront commitments to major expansions of old- style infrastructure, when these mega-projects are likely to be made obsolete by new technology (see below).

A northern growth strategy

London is a vitally important asset to the British economy, but we musn’t forget that England alone has two of the world’s greatest conurbations.[54]

The cities of the north have been undervalued and disempowered for far too long. Unlike comparable cities in America, Germany and France, England’s ‘core cities’ under-perform the national economy as a whole.[55] Merely raising the core cities to average levels of productivity would amount to the single most important UK growth and jobs opportunity of the 21st century.

The key to realising this potential is connectivity – transport and communication links that boost local productivity and attract investment. This is true not only of conurbations that are centred on a single major city, but also of those with multiple centres like Germany’s Ruhr valley and Holland’s Randstad.

There is no reason why the northern conurbation shouldn’t be as well connected as London is. For instance, the distance between Manchester and Leeds is about the same length as the Piccadilly Line.[56] Yet despite the proven success of infrastructure upgrades like the Northern Hub in the Greater Manchester area, Whitehall’s big idea for the North is HS2 – a luxury train to London that won’t even reach the North until 2032 at the earliest, won’t reach certain key cities like Liverpool at all and which won’t provide east-west links across the region.[57]

While George Osborne’s recent suggestion[58] for a new high speed line – or ‘HS3’ – between Leeds and Manchester is to be welcomed, its very name says all we need to know about Whitehall’s order of priorities.

It is time to overturn the London-centric mentality that fails to recognise the untapped potential that lies within other parts of the country.

Therefore, we propose:

  • To scrap HS2 and re-direct the planned public investment in its entirety to a Northern Infrastructure Fund.
  • Tax revenues from shale gas extraction in northern England would also go into the fund.
  • The Fund would be used to provide the core finance for a generational programme of investments in transport, communication and other infrastructural links between the key urban centres of the North and the Midlands.[59]
  • Control of the Fund will be an integral part of the decentralisation of political power to elected mayors (see chapter 5).
  • Elected mayors would also have the option to use the Fund to support tax incentives for business investment on the Enterprise Zone model (including the power to create new zones or extend existing ones).

New networks for the 21st century

For all the importance of railways, motorways and airports, these are essentially technologies of the 19th and 20th centuries. A forward facing infrastructure policy needs to get serious about the new networks of the 21st century.

We already have the internet and mobile communications of course, but the real breakthrough is yet to come: the intelligent networking not just of information, but of the physical world too. Sophisticated robotics, additive manufacturing, civilian drone technology, self-driving vehicles, smart utility infrastructure, decentralised energy sources, advanced user interfaces and the pervasive deployment of electronic sensors will enable us to apply the ever-increasing availability of computer processing power in ways that will transform the economy within decades.

Banal phrases like the ‘internet of things’ underplay the significance of what awaits us. It is better to think in terms of a new industrial revolution in which Britain must play a leading part or risk irrelevance.

Government cannot of course, predict the details of this coming revolution, but it can prepare the ground for the entrepreneurs, innovators and investors who will make it happen.

Therefore, we propose:

  • That Britain should become a global leader in establishing a planning and regulatory framework for the new networks of the 21st century – setting up the governmental and non- governmental institutions required to get on with the job.
  • By bringing forward rather than putting off the key political decisions, Britain can reduce regulatory risk and establish itself as a global destination for investment in these technologies.
  • The public policy framework must be underpinned by the principle of openness – i.e. establishing technical standards and directing public investment with the purpose of maximising competition and consumer choice.
  • It is vital that established players should not be allowed to capture the public policy agenda in order to protect their business models from disruptive innovation: as an early sign of its serious intent, the Government must completely re-design the current smart meter roll-out programme,[60] which strengthens the stranglehold of the big energy suppliers when it could and should be giving consumers more control and lowering barriers to smaller, more innovative suppliers.
  • The new networks will greatly enhance our capacity to intelligently manage our use of energy and raw materials, and our use and re-use of manufactured products: the money-making, job- creating potential of resource productivity[61] therefore needs to become a central objective of economic and environmental policy.

References

  1. Office for National Statistics, ‘A century of labour market change: 1900 to 2000’, March 2003
  2. Lane Kenworthy, blog, ‘Slow income growth for middle America’, 3 September 2008
  3. For instance, see Andrew McAfee, ‘The Great Decoupling of the US Economy’, 12 December 2012
  4. James Plunkett, The Resolution Foundation, ‘Growth without gain: The faltering living standards of people on low to middle incomes’, May 2011, page 19, figure 4
  5. Lane Kenworthy, Roosevelt Institute, ‘America’s struggling lower half’, 21 June 2012, figure 5
  6. James Plunkett, The Resolution Foundation, ‘Growth without gain: The faltering living standards of people on low to middle incomes’, May 2011, page 18, figure 2
  7. Maarten Goos et al, American Economic Review, ‘Job Polarization in Europe’, May 2009
  8. James Plunkett, The Resolution Foundation, ‘Growth without gain: The faltering living standards of people on low to
    middle incomes’, May 2011, page 24, figure 11
  9. David Autor, Centre for American Progress / The Hamilton Project, ‘The polarisation of job opportunities in the US labor market: Implications for employment and earnings’, April 2010
  10. House of Common Library, standard note, ‘Youth unemployment statistics’, 13 August 2014
  11. Gavin Kelly, Resolution Foundation, blog, ‘Young people’s wages: the numbers look scary… because they are scary’, 2 August 2012
  12. David Kingman & Ashley Seager, Intergenerational Foundation, ‘Squeezed youth: The intergenerational pay gap and the cost of living crisis’, February 2014
  13. Emmanuel Saez, UC Berkeley, ‘Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2011 estimates)’, 23 January 2013, table 1
  14. Emmanuel Saez, UC Berkeley, ‘Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2012 preliminary estimates)’, 3 September 2013, page 1
  15. For instance, see Ed Miliband, speech given at the London Stock Exchange, 6 September 2012
  16. This is the leading aim of the Million Jobs campaign: http://millionjobs.org.uk/about
  17. Peter Wright et al, Leverhulme Centre / University of Nottingham, ‘Small firms driving UK job creation’, March 2010
  18. Department of Business, Industry and Skills, press release, ‘Government crackdown on zero hours contract abusers’, 25 June 2014
  19. For instance, on the value of irregular work, see Wingham Rowan, Demos, ‘Workers v robots’, 24 April 2014
  20. Department for Work and Pensions, press release, ‘Improving economy sees 2 million more private sector jobs’, 11 June 2014
  21. Office for National Statistics, ‘Labour Disputes – Annual Article, 2013’, 17 July 2014, table 10 47 See also Robert Halfon, Demos, ‘Stop the union-bashing’, March 2012
  22. Martin Ruhs and Carlos Vargas-Silva, The Migration Observatory, Oxford University, ‘The market effects of immi- gration’, 5 March 2014
  23. BBC News, ‘Graduate starting salaries ‘drop 11% over five years’’, 14 April 2014
  24. Institute for Fiscal Studies, press release, ‘Government reforms to HE finance currently estimated to save little but long-run impact on public finances is hugely uncertain’, 24 April 2014
  25. The Daily Telegraph, ‘More universities to charge maximum tuition fees of £9,000’, 23 July 2014
  26. For a detailed treatment of how a third way funding system could work see Ian Mulheirn and Ryan Shorthouse, ‘So-cial Market Foundation, Funding undergraduates: Designing a fair market in higher education’, November 2010
  27. In his book ‘Antifragile: Things that gain from disorder’ (Penguin, 2013), Nassim Nicholas Taleb characterises op- tionality as that which “allows you to benefit from the positive side of uncertainty, without a corresponding serious harm from the negative side.”
  28. The Economist, ‘Never walk alone’, 19 April 2014
  29. HM Government, ‘Unlocking growth in cities’, December 2011, chapter 2
  30. The Economist, ‘Never walk alone’, 19 April 2014
  31. For instance, see Liverpool’s 20 Miles More campaign: http://www.20milesmore.com
  32. George Osborne, ‘We need a Northern powerhouse’, speech delivered at the Museum of Science and Industry in Manchester, 23 June 2014
  33. For instance, see One North, ‘One North: A proposition for an interconnected North’, July 2014
  34. BusinessGreen, ‘Which? calls for halt to smart meter rollout’, 29 October 2013
  35. For more on this subject see Laura Sandys et al, 2020 Efficiency and Productivity Commission, ‘Sweating our assets:
    Productivity and Efficiency Across the UK Economy’, February 2014