What causes unemployment?

In February 2008, when the prospect of a recession in the UK was being debated, the Daily Telegraph published a revealing interview with former City financier David Freud – who had been appointed by Prime Minister Tony Blair in 2006 to provide an “independent” review of the so-called welfare-to-work system. In the interview Freud claimed that he thought it was possible to get “about 1.4 million back to work”. By the time the final question of the interview came around he seemed to have forgotten the need to pretend he favoured an economy with lower unemployment, and when asked whether he thought there will be a recession, he replied “Yes, because we should have recessions every five or six years and we are due one”. This was one of the rare instances of a politician publicly departing from the mantra of claiming to want an economy that will produce “jobs and growth”.

It has been the policy of every UK government (and those of most other countries) for over 30 years to ensure that unemployment is prevented from falling below what is often described by economists as a “sustainable”, “natural”, “structural” or “equilibrium” rate of unemployment (these terms are interchangeable).
On the rare occasions that this policy is discussed in the mainstream media we find that economists, journalists, and politicians usually reveal themselves to be in favour of using unemployment to exert what is deemed to be the necessary “downward pressure on wages” in the name of controlling inflation.

This website exists to shine a spotlight on what has long been standard government policy regardless of which party is in power – namely, deliberately creating insecurity and poverty through unemployment, and thereby putting downward pressure on wages for those who are in employment. It is sometimes said that there is no longer a commitment to full employment – this  implies that governments are merely being passive in not pursuing policies which would otherwise result in higher levels of employment. The reality is that governments and their institutions study the labour “market” very closely, and actively pursue policies which are designed to ensure unemployment is not allowed to fall to a level euphemistically described as “unsustainably low”.
The most damning evidence for this despicable policy can be found in the minutes of the monthly meetings of the Monetary Policy Committee (MPC) of the Bank of England which have been published since June 1997. Here`s an example from its December 1997 meeting, where the minutes recorded the MPC`s concern with the different effectiveness of long and short-term unemployment in pushing wages down:

“The empirical evidence in general supported a more powerful role for short-term unemployment in putting downward pressure on wages. Some studies suggested that only short-term unemployment mattered. But recent Bank research had suggested that, although short-term unemployment was more important, the potential downward effect of long-term unemployment on wages should not be disregarded.”

While a fairly large amount of media coverage is given to unemployment, what is missing from the vast majority of the mainstream media (unsurprisingly) and the left-wing alternative media (surprisingly) is the politically explosive evidence that governments ensure there are always too few jobs in the economy. Some of the few examples to appear in the UK mainstream media are given below.

The late 1990s was a period when the high level of employment generated by the boom caused great concerns in the powers that be that unemployment was too low, leading several mainstream media outlets, including the BBC, to openly and uncritically report the efforts of the Bank of England to raise unemployment through higher interest rates. Below are 3 extracts from articles and editorials, which are from, or refer to, the period June-September 1998 to illustrate the point.

From “How wage inflation has been tamed”, By Lea Paterson, Independent (UK), published 16 February 1999:

 EIGHT MONTHS ago the Bank of England was so concerned about inflationary pressures in the labour market that it hiked UK interest rates up to 7.5 per cent. Unemployment was unsustainably low, the Bank said, and would have to rise in order to keep inflation in check.

A Financial Times editorial (subscription required) entitled “Bank calls the turn” which was published on September 11th 1998 was blatant in calling for an increase in unemployment of up to half a million:

“unemployment must now be allowed to rise – perhaps by 500,000 – to bring the economy back to a non-inflationary path”

On September 25th 1998 the BBC, at least on its website, if not in its broadcasts, had apparently decided to ditch its bogus claim to “balance” in an article entitled “Why unemployment has to rise” where it told readers that:

“the Bank of England recognises that, however painful, unemployment has to rise for the government to hit its inflation target. And the bank is determined to reach this goal.”

As Australian economist Bill Mitchell has pointed out there is an issue of human rights violation in the maintenance of a “reserve army of labour” in the form of mass unemployment, he writes:
   In 1945, the Charter of the United Nations was signed and ratified by 50 member nations. Article 55 defines full employment as a necessary condition for stability and well-being among people, while Article 56 requires that all members commit themselves to using their policy powers to ensure that full employment, among other socio-economic goals are achieved.

These noble aims coincided with the beginning of the period known as the “Golden age of Capitalism”, where the UK and many other countries enjoyed low unemployment combined with high rates of economic growth. The deliberate reintroduction of mass unemployment in the 1970s & 80s was a reaction by elites to what they perceived to be the negative consequences of low unemployment.

The man-made “natural rate of unemployment”

The concept  of a “natural rate of unemployment” springs from the doctrine of Monetarism, which gained acceptance in the mid-1970s thanks to the efforts of US economist Milton Friedman. While the mainstream media since that time has given much coverage to the claims of monetarist economists, very little coverage has been given to one of the fundamental features of monetarist doctrine, namely the claim that unemployment is necessary to control inflation in an economy. Milton Friedman coined the term “the natural rate of unemployment”, claiming that any attempt to reduce unemployment below a “natural rate” will result in inflation, and that as long as unemployment continues to remain below the natural rate then inflation will continuously accelerate, leading to hyper-inflation. It is because of this reasoning that “the natural rate of unemployment” is often known by the clumsy term the “Non-Accelerating Inflation Rate of Unemployment” or NAIRU for short.

Cuts in government spending and unemployment

The devastating cuts being experienced in many countries at present are a more obvious cause of unemployment than the interest rate manipulations of central banks during booms. In the UK, the last time big cuts were made to government spending was under the administration of Margaret Thatcher when large cuts in public spending were combined with very high interest rates to devastating effect. The bogeyman at that time was inflation, the new bogeymen this time are deficits and national debt. It is no coincidence that the policies prescribed as cures for both hyped-up crises just happen to lead to very high levels of unemployment – this is the real crisis! The fear of unemployment is being used by employers (including the state) to force workers to settle for lower wages.

Right-wing excuses for persistent unemployment
There are no shortage of explanations from the Right for persistent unemployment – they all involve criticism of the effects on employment levels of every progressive reform which has improved the situation of working people since the appalling conditions of the nineteenth century.
Many commentators on the Right blame persistent unemployment on the Welfare State – and call for its dismantlement as a solution. In the UK, perhaps the most dedicated pedlar of this nonsense is Daily Telegraph journalist James Bartholomew, who trained as a banker before going into journalism, and is the author of “The Welfare State We`re In”. Other alleged causes of unemployment include trade unions, employment protection legislation, the minimum wage, health and safety legislation etc.