Getting-Rid of Unemployed Scroungers

Labour proposed today to guarantee a job or a training scheme for anyone that has been unemployed for two years or more. This seems reasonable until you consider that people will lose benefits if they turn down what is offered. To many this is still not unreasonable, however it is dangerously similar to the failing and widely discredited “Workfare” programme of the Conservatives which has been likened to slavery.

Whatever you choose to call it there is an awful lot of stick and very little carrot here, and once more we can only assume that any resulting jobs will have been heavily subsidised by the state (expected costs are £1.5bn) meaning that private companies can recruit extremely cheap employees and will therefore offer fewer jobs at ordinary wage rates. This means that once more real wages will fall and all employees will suffer in the long term.

The issue here is one of emphasis. Politicians are still placing the emphasis of their policies on beating the poor into poorly paid low skilled jobs with a large stick to make the employment market work. Perhaps Labour do not go as far as the Conservatives who by capping increases in unemployment benefit to make work look more attractive, might as well be saying they will make food look more attractive by starving people. But by not offering a genuinely different approach they strengthen the misguided and simplistic argument that the unemployed don’t have jobs because they are lazy.

In the 1980’s the Conservative government of the time wanted wages to be determined by the market. This means that wages are determined at the wage level where the number of people willing to work (S) equals the number of people that employers needed (D), and so anyone who is not attracted to the labour market at the current wage levels remains unemployed.

Thatcher and her party knew this when they championed the policy, they wanted to reduce wage rates by ending the focus on full employment as a political priority, and they were successful. It is however somewhat hypocritical to then complain about those who have looked at the market and chosen not to sell their efforts at the current rate, since this was exactly the point of the policy that they implemented.

I am not suggesting that unemployment is not a problem, quite the reverse. Not only does it lead to higher costs for the state and worse outcomes for the unemployed themselves, but it also causes a myriad of social problems for both the long term unemployed and society at large. However, the market alone will always leave some people unemployed. The government is trying to correct this by reducing everyone’s real wage rates (although they don't put it like this in interviews, they say "increase labour market flexibility") to encourage businesses to employ more people. Unfortunately with lower wages we can't buy as much and so the amount a business can sell falls and so the amount of profit a businesses can make falls. As a consequence of falling sales, employers have to cut costs to try to maintain profits and they usually do this by sacrificing employees (which incidentally the government would like to make easier), and so the policy actually results in higher unemployement.

The argument for using this approach is that if we can achieve full employment through it (we can’t), employers would be forced to compete on wage rates and so in the long term wages would be higher. Make no mistake, anyone on the right of the political spectrum not only expects some unemployment but they desire it since this keeps costs lower for the businesses that sponsor their political campaigns. If we really want to solve the problem of unemployment and the other issues that this causes then we need a different approach.

The market cannot solve the problem of unemployment on its own. All the market does is moderate the price of wages. More specifically, if there is some unemployment in the economy, the market keeps wages low. The Conservative workfare programme and Labour’s new proposals seek to solve this problem by subsidising the cost of employees and forcing people into work but this will not work since it does not encourage employers to demand more employees, they will just employ the same number but at a lower cost and make more profit as a result. The only way to solve this problem is to increase the demand for employees so that wage rates increase and therefore attract more people into the jobs market.

Since time immemorial this is the way that civilisations have solved this problem. Egypt built the Pyramids, Rome built the Colosseum and Britain built the NHS. The current approach to solving our problems in contrast, is to strip down and sell off everything we have achieved as a nation and pretend that our previous projects failed, and it will not work. What we need to do is engage in more ambitious programmes like the NHS which employ people, both to construct them and to run them.

 

By doing this more people are required to work which pushes up wage levels and makes us all better off immediately since employers now have to compete for our services by offerring higher wages. It also creates more jobs so that people can contribute to the economy. Once people are employed they spend the money they earn in the local community, in shops, bars and restaurants boosting our economy even further. This activity even creates an increase in the tax that government receives and a reduction in unemployment costs, and therefore allows us to pay for the projects by simply starting them.

Let’s build more schools, more hospitals, more housing. Let’s expand our science and space programmes and fund university research into projects like developing clean energy that both serve us as a community but just as importantly provide jobs and prospects. Let’s stop vilifying the unemployed as we sell the jobs that they could have done to cheaper countries and then criticise people for not working. Yes there are other issues, inflation for one and the cost of the projects for another. However, the nation's debt situation was far worse when we built the NHS than it is today, and although inflation can be a huge problem, as long as we ensure wages keep up with prices then we will find that the real cost of living falls as our mortgages and other daily costs become more affordable.

Our problems are not insurmountable, they aren’t even new and nor are the answers. Keynes suggested this approach in the 1930’s and we used it to build the welfare state. The answers are older than that even, they have been used by great civilisations for thousands of years by building better states for the benefit of everyone. China is following this model as we speak and they will soon become the largest economy in the world due to the continued economic growth that they have experienced as a result.

Let’s stop playing this hypocritical and self-defeating blame game and start doing the things that will benefit our economy by benefitting us all. That's how we get rid of the "Unemployed Scroungers"!