Groping for a path to jobs

by Hugh Cortazzi

Market turmoil and the continuing slowdown in growth have led to increased unemployment especially in the developed economies of Western Europe and in the United States.

Unemployment has blighted the life of many millions and has been particularly damaging for young people who have been unable to find jobs even if they have good qualifications. This has meant that in many countries the numbers of NEETS (not in employment, education or training) has swollen.

The obvious answer is to accelerate growth, but this is complicated by the indebtedness of the public sector in many economies. Governments cannot spend to stimulate growth if they cannot borrow at reasonable rates of interest which they and future generations can afford to pay. The debts of many countries including the U.S., Italy and even Japan have been downgraded by the rating agencies. Their judgments may not be correct but markets do pay attention to them and some governments do end up defaulting on their debts.

Governments through central banks can create credit by ‘quantitative easing’ i.e. printing money. This may help banks to provide credit but companies are unlikely to want to borrow to invest in ways which will help to create jobs unless there is adequate demand for the end products.

There is also the danger of creating inflation. This may not be great at this stage in the current economic cycle. But the prices of food and energy have been rising so that in the United Kingdom at least price inflation is a real problem, even if the Bank of England thinks that inflationary pressures will subside.

The British government is determined to stick with its package of austerity measures, which are needed to bring the budget back into balance by the time of the next election which has to be held by 2015. But they are looking at ways of bringing forward capital projects which would boost employment especially if these are largely self-financing. It is not clear how effective these efforts will be, but they seem unlikely to have a significant impact on unemployment.

According to many critics unemployment is exacerbated by employment laws which make the hiring of workers difficult and expensive. In many countries payments for health, pensions and social security add significantly to wage and salary costs. In addition rules designed to protect workers against unfair dismissal are often a deterrent to the hiring of additional staff.

These rules tend to benefit those already in employment rather than the unemployed. Trade Unions understandably are more concerned with the rights of their members in employment than of the nonunionized unemployed. Some liberalization of employment laws would help to increase employment opportunities. In many economies this could be done in a way which did not infringe the basic rights of workers and which would help part-time and temporary workers. But such changes would have only a marginal effect on unemployment.

Financial incentives to take on more workers, for instance by temporary reductions in social security costs, might be more valuable, but again the effects are likely to be limited.

In many countries youth unemployment is exacerbated by inadequate education and training. The British government are determined to improve the quality of state education. The methods to be used in achieving this are inevitably controversial especially among teachers who have powerful unions.

The government is also working to increase the number of apprenticeships in industry. The situation in Britain over apprenticeships compares unfavorably with that in Germany.

Unemployment in Britain has not been helped by the way in which social security benefits have been determined. Take-home pay for some in work has been less or comparable with state administered benefits for those out of work. There has thus been little incentive, especially for the under-educated unemployed, to seek work and stick to any jobs they may find.

The government is determined to simplify the benefits system and increase the real financial incentives for work. But reform of the system will take time. There will inevitably be losers as well as gainers and some political fallout.

One result of the complex social security system has been the erosion of the work ethic. Men and women who may never have been in employment and who have never got used to regular hours of work find it difficult to adapt to employment and the self-discipline required. As a result they often do not stay in jobs which may be found for them.

In Britain jobs, which in Japan would come in the “3-D” category (dirty, dangerous and difficult), have tended in the post-war era to be filled by immigrant labour. Now that immigration from outside the European Union is being more strictly limited, back-breaking jobs such as fruit and vegetable picking tend to be done by European Union nationals willing to work here for the minimum wage.

Another feature of the employment scene in Britain and in some other west European countries has been the “Polish plumber” phenomenon. Poles have come to Britain to find work which is better paid than in their home country and have proved to be efficient and reliable workmen, especially in trades like plumbing and decorating.

It is understandable that men and women who have been trained for white collar jobs should be reluctant to take on jobs involving physical labour but unemployment will not be reduced without increased flexibility among those out of work over what jobs they are willing to take.

Hugh Cortazzi served as Britain’s ambassador to Japan from 1980 to 1984.