1970s >> 1976 >> no-864-august-1976

The Future of Unemployment

In all countries there are numbers of economists and politicians whose job it is to analyze unemployment and try to forecast future movements, mostly without much success.

A more successful sideline is open to those who work for governments because as the governments control the publication of the statistics they do from time to time manipulate the figures to make unemployment appear to be less than it is. One such case was the decision to exclude the “temporarily stopped” from the official definition of the unemployed; up to the end of 1972 they had been included. Normally the effect of this exclusion would reduce the total number of unemployed by only a few tens of thousands. But in January 1974 when “three-day working” was in operation and unemployment under the new definition was given as 606,000 it was reported by The Times (25th Jan. 1974) that if the old definition had still been in use the total of unemployed would have been 1,526,000. It is more than likely that governments will look for additional ways to present the figures favourably.

The forecasters of unemployment (just like the forecasters of population) have repeatedly been misled by assuming that because a certain trend has shown itself for several years it can be counted on to continue. Round about 1900, and again from 1945 to 1955, unemployment was consistently at low levels and it led many observers to the conclusion that low unemployment was here to stay. And every prolonged depression has revived the theory that unemployment would go on rising indefinitely. In the nineteen-thirties the followers of Major Douglas advised the Labour Party to change its name because there would soon be no “labourers” — only unemployed. And in 1963 in USA a “Labour Committee for Full Employment”, supported by trade union officials and economists, was assured by a self-styled expert that by about 1974 98 per cent, of the workers in USA would be out of a job and only 2 per cent, working. As it turned out, the level of unemployment in 1974 was not even eight per cent.

Even Frederick Engels, with all his knowledge of the way past depressions had eventually given way to renewed expansion, fell into a similar error. In his 1886 Preface to Capital he announced his theory of “permanent and chronic depression”. In the previous six years unemployment in Britain had climbed from 3.5 per cent, to over 10 per cent, and Engels could see no way out. In fact in the four following years it dropped to 2.1 per cent., and Engels had to see that he had been wrong.

Trying to forecast how capitalism will behave, and in particular trying to foresee at what point in a depression a sufficient number of capitalists will decide that profit prospects are good enough to warrant more investment in old or new industries, is a difficult business as all the failed attempts by official and unofficial bodies over the years have shown. In the past thirty years a new misleading factor has come on the scene, the belief that governments, by applying Keynesian theories of expansion, actually have control of the situation and can fix unemployment at whatever level they choose. The ten years of low unemployment after World War II encouraged them in this mistaken belief, and they have all been baffled by the continuous upward trend of unemployment since about 1955.

Peter Jay, Economics Editor of The Times, summarized the situation in a lecture in December 1975:

After the writings of Keynes, and even more after the simplified popularization of his writings and their endorsement by governments, the politicians and the public have also assumed that the means of securing high employment always lay to hand.

(The Times, 5th December 1975)

To say that the followers of Keynes are now in disarray is to put it mildly. Some have concluded that it was all a mistake and The Times in an editorial told its readers that “unemployment . . . will decline as fast and as soon as we all forget Keynes” (13th Feb. 1976). Like The Times Mr. Healey, after being a Keynesian expansionist all his political life, is now pinning his hopes for reduced unemployment on his policy of keeping wages down:

In fact wages will be coming down while our competitors’ are going up. That is the best possible news for exports and unemployment. I believe we are going to get unemployment down faster than any other country.

(Speech reported in The Times, 11th May 1976)

The Tory leaders are divided between those who still follow Keynes and those who have deserted him. Jeremy Thorpe, at that time still leader of the Liberal Party, forecast in 1974 that unemployment would reach 20 per cent, unless prices and wages were held down (Sunday Times, 29th Sept. 1974).

One interesting case is Jack Jones, general secretary of the Transport and General Workers’ Union. In 1971, under a Tory government, he claimed that unemployment had been prevented from going up by the action of the unions in pressing for “high wages” and thus “boosting the economy” (Financial Times, 13th July 1971). But six months later, though wages were still going up, unemployment had gone over a million. Under Labour government in 1976 it went to 1,400,000, but Jones had by then changed his line and had agreed to the government policy of limiting wage increases to keep unemployment down.

The question still remains: What is likely to be the future course of unemployment? One thing is certain. Keynesian methods of conducting government policy have not and cannot secure full employment, or enable capitalism to avoid the cycle of expansion, crisis and depression that has marked two centuries of capitalism. Why then was unemployment low for ten years after World War II in this century? A useful examination was made by Professor Matthews (Economic Journal, September 1968). Among the factors were wartime destruction that had to be made good, a backlog of capital investment, and the fact that many employers, anticipating that any depression would be small and short-lived, kept workers (especially skilled workers) on their payrolls.

 
None of these factors now apply: pointing to the likelihood that in coming years unemployment may revert to the kind of levels shown before 1914, that is averaging well above the 2 per cent, of 1945-55 and reaching occasional peaks above the 6.1 per cent. (1,400,000) of January 1976. It remains to be seen.

Edgar Hardcastle