As I write, the number of job vacancies reported in the UK is around 425,000. It has fallen by half since the first cases of Covid-19 were reported in the UK. The number of officially unemployed is 1.56 million. In addition there are 3.36 million underemployed, including around 222,000 seeking an additional job. That makes for at least 1.78 million people chasing 425,000 jobs.
Given these figures, it is mathematically certain that around 1.35 million people searching for jobs won’t find any. And these are the official figures. They exclude many, e.g. those who will need a job but aren’t seeking work yet, perhaps because they have caring responsibilities they need to discharge first. Moreover, the number of vacancies might continue to fall.
This is mass unemployment. It existed before Covid-19. But the virus has focussed attention on it. As many have sat at home, receiving their furlough payments while essential services were preserved, they have had time to consider just how much the economy can keep running without them being at work. Employers are cancelling jobs as they realise they can get by without anyone doing them. One level up, the employers themselves – businesses, charities, local government departments – are disappearing as the economy as a whole “decides” it can get by without them.
In financial terms, the furlough scheme, and the associated grants to frozen businesses, required a colossal increase in government debt. This in turn was largely financed by the Bank of England. This sort of thing plays havoc with our intuitions: the state appears to be paying us by borrowing from itself. Rather than trying to penetrate the arcane mysteries of government finance, we’re better off thinking in terms of real resources. The bottom line is that a small portion of the workforce is able to keep the population fed, housed, and – to a remarkable degree given the circumstances – healthy.
I’m not denying that many have struggled enormously. The legal scholar Katharina Pistor has pointed out that the average UK household now owes an average of £15,385 to credit card companies, banks, and other lenders. There is every reason to expect that the Conservative government will seek to reduce its debt by pushing it onto individual households, as it did following the crisis of 2008. But financial pressure is a matter of distribution, not real scarcity. Suppose that one person owned all the resources – enough to comfortably feed and house the whole population – and forced others to purchase these by borrowing on usurious terms. Abundant resources would be combined with high levels of financial insolvency. Debt is a far better measure of the unevenness of wealth and power than of genuine scarcity.
A circumstance in which so few can provide the resources needed by everyone raises enormous economic and philosophical challenges. Traditionally, our economic system has run on the principle (though not always the practice) that people get access to resources in proportion to their role in producing them. When producing what the population needs requires the efforts of the whole population, this is a sensible principle. When technology allows a small minority to produce what the whole population needs, it is time to rethink.
So far, governments have tended to hope that the problem of unemployment will go away on its own, perhaps with the help of a few nudges from the state. Boris Johnson recently announced that his government will give every young person in the UK an “opportunity guarantee”: the chance of a work placement or apprenticeship. This merely continues the current practice of hoping that the right sorts of subsidies and training programmes will lead employers to find a use for the whole unemployed youth population, which the Resolution Foundation estimates will rise by 600,000.
This policy is naïve in intention and cruel in effect. During the last days of the British Empire, the government devised a system for dealing with Asian and African citizens of the UK, who attempted to enter Britain from colonies whose new governments had expelled them. Upon arrival in Britain, all but a small quota were refused entry and put on flights back to the colonies they had fled, where they would immediately be forced onto flights back to the UK. This process could be repeated indefinitely and was known as “shuttlecocking” (it is discussed in Michael Dummett’s book On Immigration and Refugees). Families with small children weren’t spared the nightmare of endless air travel. The treatment of the unemployed, under our current system, is a type of shuttlecocking. Jobseekers are made to fill out countless job applications. When these are rejected, they are made to go on training courses and then fill out new applications, to be rejected again. Since the number of jobseekers vastly exceeds the number of vacancies, just as the number of UK citizens expelled from the colonies vastly exceeded the government’s imposed quotas, it is guaranteed that shuttlecocking will continue indefinitely for many.
You might think that a relevant difference here is that the quotas were deliberately imposed by the government, whereas unemployment is an unintended effect of the labour market. But things aren’t so straightforward.
In the past, governments pursued full employment policies, using stimulus and spending programmes to bring unemployment down to the lowest possible level. The standard story is that this led to accelerating inflation. In her 1967 book, Economics: An Awkward Corner, the philosophically-minded economist Joan Robinson briefly contemplated the possibility of maintaining a certain level of unemployment – she chose a figure of two to three percent – in order to keep inflation under control. She dismissed this out of hand: “to adopt such a cold-blooded policy is out of the question.” But by the 1980s, the conventional wisdom converged on precisely this idea, dubbed the “Non-Accelerating Inflation Rate of Unemployment” (NAIRU).
Roughly, the theory of the NAIRU is that labour markets, for various reasons, price wages higher than the “market-clearing” full-employment level. Therefore the only way to stop wages inflating at an accelerating rate is to maintain a certain level of unemployment. Today governments and central banks target a NAIRU of between four and five percent: twice as cold-blooded as what Robinson found beyond the pale. The adoption of this standard policy across the developed world is a remarkable victory for the doctrine of sacrificing the innocent for the greater good. It applies what the philosopher Jean-Pierre Dupuy calls “Caiaphas Law”, named after the high priest in the Gospel of John who declares: “You do not realise that it is expedient for us that one man should die for the people and that the whole nation not perish” (John 11:50). We do not realise, say the economists, that it is expedient for us that millions should be condemned to unemployment (by no fault of their own), so that the whole nation doesn’t suffer accelerating inflation. Moreover, just as Jesus was not simply sacrificed but crowned with thorns and mocked, so our unemployed are shuttlecocked through endless training courses and job applications, and shamed in the tabloid press as “burdens on the taxpayer”.
Mass unemployment occurs at a level exceeding the NAIRU, of course. But the NAIRU stands in the way of any government policy to deal forthrightly with it. The Trade Unions Congress has recently called for a government jobs guarantee, offering every jobseeker a paid public-sector job at a living wage for at least six months and including transferrable job-training. This is inconsistent with the NAIRU. If some people must be unemployed, to avoid accelerating inflation, then everyone can’t be guaranteed a job.
The NAIRU also stands in the way of another increasingly popular scheme: the Universal Basic Income. If we define a basic income as an income that is enough to live on, then a universal basic income is like a living-wage jobs guarantee, except the jobs are very open-ended. Effectively, the recipient is paid a living wage and encouraged to contribute however she sees fit – she might pursue an artistic endeavour, provide full-time care to a relative, etc. But there is no reason that these open-ended, living-wage jobs would not play into the accelerating wage-inflation predicted in the theory behind the NAIRU. Either that or the basic income would fail to keep up with the inflation in other wages, until it was no longer enough to live on.
Is the theory behind the NAIRU correct? I don’t want to get into a discussion about the use of data to prove macroeconomic theories. But one of the most serious conceptual challenges to the idea comes from what has become known as “Modern Monetary Theory”, the subject of intense debates on social media. Pavlina Tcherneva’s recent book, The Case for a Job Guarantee, describes the current state of the art.
The key to this thinking is the idea of a “buffer stock”. The Australian economist Bill Mitchell notes how Australian state governments used to stabilise the price of wool in the following way: when prices dropped, due to failing demand or excess supply, the state would buy up the excess stock of wool and store it somewhere, thus injecting demand and removing supply. When wool prices rose, the state would sell off its buffer stock of wool, and the new supply would drive the price back down. Effectively, Mitchell argues, the government does the same with labour: when labour markets are slack and wages fall, the government “buys up” excess labour (by paying workers a jobseeker allowance), and tempers the drop in wages; when labour markets tighten and wages go up, workers move out of the buffer stock to find private-sector work, and the influx of supply dampens rising wages.
There are two crucial points here. First, there is no need for the buffer stock to be unemployed; people just need to be temporarily bought out of the private labour market. Second, wages will stabilise around the amount paid in the buffer stock. So this could be a living wage. Therefore the unemployed buffer stock could be replaced by a state-employed buffer stock, paid a living wage. The NAIRU could be replaced with a NAIRSE: the Non-Accelerating Inflation Rate of the State-Employed.
Warren Mosler, who hit upon the same idea as Mitchell, points out that an employed buffer stock would function better as an inflation control than an unemployed one. In the wool example, imagine if the state-purchased wool got stuck to the sides of the sheds. Then the Australian wool policy wouldn’t have worked: wool couldn’t be released onto the market when it needed to be. But the unemployed often get stuck in unemployment: once they’ve been unemployed for a while they become unattractive to employers, not least because of the effects that sustained unemployment is known to have on mental health (perhaps lockdown and the furlough has helped more people to understand this). One of the main causes of unemployment is unemployment; this is an example of what is known as “hysteresis”.
There is, therefore, no good reason for the government not to offer some sort of paid work to every jobseeker. Lest this be castigated as a form of “workfare”, the proponents make it very clear that the policy could be easily combined with a Universal Basic Income or other out-of-work benefit system. It would be possible for guaranteed state employment to pay a slightly-higher-than-living wage, to offer an incentive to those who might otherwise prefer to live on out-of-work benefits. So long as the two rates of income were not indexed to inflation they would work as what Mosler calls a “price-anchor” on wages (when private-sector wages went up, jobseekers would move into the private labour market and bring the wages back down towards the “anchor”).
Besides a number of technical economic points, the main objection to this policy revolves around the question: but what work will people be given? Most proponents of the policy recommend a decentralised system, in which local governments, charities, and so on could put in bids to use the workers in the buffer stock as they required. Naturally buffer-stock employees couldn’t be put into essential roles, since the whole point is for them to move out of the buffer stock if the private labour market picks up. But many remain sceptical that there would be enough useful work. Here is a deeper philosophical point.
I began by noting that only a small subset of the population is required to produce what we need. I meant material needs: food, shelter, and medicine. But, I hope, lockdown has shown us that we need each other for much more than that. As my favourite philosopher Spinoza put it, there is nothing more useful to a person than another person. We need each other for company, for care, for entertainment, to build beautiful things and discuss challenging ideas, to tell jokes, share interests, and help us realise that we aren’t alone. The great tragedy of sustained unemployment is the feeling of receiving what economists call a “market signal”, that you aren’t needed by anyone. This signal is entirely false. It is the product of an outdated economic system that we haven’t yet found the inspiration to reform. I refuse to believe that millions of people aren’t needed at all. Each of us is desperately needed, and we all deserve to know this. Somehow, we must build an economic system that allows everyone to know it.
A state-funded job guarantee would require us to build institutions for determining what each person can best contribute and turning this into a paid role. It would set a standard for private employers to follow, of making work cut out for us, rather than making us cut out for work. That isn’t a defect of the scheme; it’s the best thing about it. It would force us to ground the economy on the fundamental truth that each of us is needed.