Unemployment Then and Now

I keep hearing young, conservative economists and pundits favourably comparing unemployment today with that in the 1970's. To be fair, they were not even born in the 1970's, and, for many of them, even their parents would have been, at best, only toddlers. They only know that the 1970's were a very long time ago, and that today's unemployment rate has eventually fallen to what it was then, after decades of high unemployment. But, were they to do what any economist or pundit should do, which is to read some books, and obtain the data, for these earlier periods, they would know what those of us who actually started work in the 1970's, and lived through the economic chaos, created by Thatcher, in the 1980's, already know, which is that a comparison with the 1970's is nothing to write home about. The 1970's was the point at which the long postwar boom came to an end. It is the point, when a new period of crises of overproduction erupted across the globe. Those of us who started work in the 1970's are aware that it was a time when there was shock and horror that, for the first time since the 1930's, unemployment exceeded the 1 million mark, bringing with it all of the memories that went with it. 

Economists talk about two types of unemployment – frictional and structural. Frictional unemployment is when people are unemployed for only a few days, weeks, or at most months, whilst they are moving between one job and another. At a time when the economy is growing faster, and jobs are easier to obtain, with wages also tending to rise due to a relative shortage of labour, the proportion of frictional unemployment to total unemployment tends to rise, because workers seek out better paid jobs, and move more quickly from one to another. There is always some level of frictional unemployment, which is why economists never set zero unemployment as being the definition of full employment. Structural unemployment is what happens, however, when people lose their jobs, because certain industries, in the economy, go into decline, laying off workers, and where the capital released from those industries does not get employed elsewhere, to provide alternative employment for the workers laid off. That is what happened in the 1920's, and 1930's, and again in the 1970's, and 1980's. 

In the 1950's, the postwar boom meant that there was not enough labour to meet the needs of capital. Workers were encouraged, if not required, to work Saturdays and Sundays, and to work overtime during the week to compensate. Millions of married women workers were drawn into the permanent workforce, themselves having been freed from domestic labour by the introduction of new labour saving domestic equipment such as vacuum cleaners, washing machines, spin dryers, TV's, and so on, as well as the socialisation of many domestic responsibilities such as childcare, elderly care, and so on that was taken on by the welfare state. The individual value created by this female domestic labour was greater than the value of the equipment required to replace it, so that it became an obvious choice for workers to obtain wages for the sale of that labour-power, and to use those wages to buy the machines that replaced it, along with other enhancements to workers living standards. 

But, even this additional supply of labour, from these latent reserves was not enough to satisfy the demands of capital. So, immigration was encouraged. Similar things happened across Europe and North America. This was, of course, a period before any immigration controls existed in Britain. Immigrant workers were encouraged to come to Britain from the Caribbean, the Windrush generation, as well a from other parts of the Empire, to fill these jobs. In the immediate aftermath of the war, and, with living standards rising, despite the continuation of food rationing, the so called Baby Boom occurred, but this new generation of workers could not add to the required supply of labour until 1960, at the earliest. 

The lowest unemployment rate in Britain in the post war period was 1%, recorded in the mid 1950's. It remained between 1-2% for the rest of the 1960's, a level of around 600,000 people. This was nearly all frictional unemployment, at a time when relative labour shortages meant that workers could move freely from one job to another in order to obtain higher wages, and better conditions. Moreover, this definition of unemployment was based on the claimant count, i.e. the number of people who actually registered as being unemployed, to seek benefits. In the 1980's, when unemployment under Thatcher soared, as the period of crisis intensified, and then gave way to economic stagnation, her government changed the basis of calculation 20 times, in order to massage the figures downwards, as well as encouraging elderly workers to remove themselves from the job market, and encouraging others to register for sickness and disability benefits rather than unemployment benefit. The unemployment rate had soared to 14%, under Thatcher in 1982, and the level of over 3 million, equal to that in the 1930's, has been estimated to be the equivalent of something like 6 million, if measured on the earlier basis. 

Unemployment rose in the early 1970's, after the Heath government came to office. Heath's government responded with the traditional Keynesian measures to stimulate the economy, showing that this was nothing to do with a cruel Tory government deliberately raising unemployment to harm workers, but was simply the normal functioning of the capitalist economy over its long wave cycle. In fact, the same thing was happening across the globe, as the postwar long wave uptrend came to an end. Similarly, it is ridiculous for governments, be it Trump or Johnson, to claim credit for unemployment levels falling, because by far the greatest determinant of that is the normal functioning of the capitalist system over its long wave cycle. Particularly idiotic government policies can make things worse, but no amount of government government policies can make things anything other than marginally better, even in the short-term. 

Heath's Keynesian intervention in the early 1970's, acted to moderate the ill-effects, as they had done on every previous recession in the postwar period, but, now, the effect was not to return the economy to its earlier growth path, as happened during the uptrend, but only to cause inflation to rise. The policies of Heath's Chancellor, Anthony Barber, in also increasing money supply, led to the short lived Barber Boom, that saw the first major upward twist in the house price spiral – though there had been an earlier similar spike caused by a previous Tory Chancellor, Reggie Maudling in the early 1960's. But, by 1974, the dynamic of the long wave cycle imposed itself again, with another, deeper crisis made worse by the oil crisis that sent oil prices soaring. Now, there was a combination of high levels of unemployment due to the crisis, along with high and rising levels of inflation – stagflation. 

Harold Wilson's government coming in in 1974, saw the unemployment rate fall, marginally, as the immediate effects of the oil crisis dissipated, and as his Social Contract put a bureaucratic lid on the level of wages and prices. But, the fundamental problem facing the system, as with all such points in the long wave cycle, was that extensive accumulation had led to labour supplies becoming scarce, and wages rising, with productivity growth slowing. As Marx describes in Capital, and Theories of Surplus Value, this is the manifestation of an overproduction of capital. Capital has expanded faster than the available labour supply, so that the mass of surplus value cannot be expanded by either absolute surplus value or relative surplus value, at the same pace as the growth of capital. So, the rate of profit is squeezed, as Glyn & Sutcliffe had shown in Britain, and Thirlwall and others had shown in relation to the US and elsewhere. Eventually, any increase in capital causes the demand for labour to rise to a level, whereby wages rise at a pace that causes the mass of surplus value itself to fall, creating an absolute overproduction of capital, and consequent crisis. 

Particuarly idiotic government policies, in the 1980's,
deindustrialised developed economies, whilst inflating
 huge asset price bubbles.

The solution to that problem is for capital to introduce new labour saving technologies that remove the shortage of labour, cause wages to fall, productivity to rise, and for both absolute and relative surplus value to rise, creating a rise in the rate of surplus value and rate of profit. It requires a technological revolution to bring it about. That is what happened in the later 1970's and 1980's. Whatever government had been in office, the result would have been higher unemployment, as this effect means that labour is pushed out by technology. It is just that Thatcher's government in the UK, and Reagan's in the US encouraged that to an even greater degree. Moreover, coming back to the point earlier about particularly idiotic government policies making things worse, that is also what Thatcher's and Reagan's governments did. Both, in their policies, encouraged deindustrialisation of their economies as part of an ideological war on workers and organised labour. Both encouraged the development of asset price bubbles by their policies of inflating the money supply, and deregulating financial markets, which encouraged borrowing, and the use of borrowed money for property and financial speculation. It was the root cause of the bubbles that erupted in subsequent decades, that has created the current housing crisis, and led to the 2008 financial crisis. 

The only reason that today's unemployment rate looks good is by comparing it to the high levels of unemployment that existed under Thatcher, and her successors.  However, going back to the point made earlier, after the new long wave uptrend began in 1999, Britain as elsewhere saw the demand for labour again rise sharply, despite the labour-saving technologies introduced from the 1970's onwards.  The chart above shows the steady fall in the unemployment rate under Blair and Brown, alongside the 2 million migrant workers that came into the economy to help deal with the labour shortage.  Moreover, again emphasising the point that this is almost exclusively down to the operation of the long wave cycle, and not government policy, Blair and Brown rand budget deficits that were only half what they had been under Thatcher and Major, and Blair managed four years when there was a budget surplus, compared to just two years for Thatcher.

Compare the unemployment rate of around 4% today, with the 1% of the 1950's, or the 2% of most of the 1960's, and it looks nothing special. Moreover, that is before considering the different methods of measurement now compared to then. The most obvious being that today's measure only includes those actually in receipt of benefit, not all those who might otherwise have been entitled to register. It does not take into consideration the large numbers of people, today, employed on zero hours contracts, or who are in fake self-employment, who are employed casually, or part-time and so on. If all these other factors were taken into consideration, the real rate today would be more like 6%, or about 6 times the rate in the 1950's, and 3 times the rate in the 1960's, and still about 50% higher than the rate during the crisis era of the 1970's. 

This is nothing for a government to be bragging about. However, facing the problems that arise from Brexit, and with the need to appease the bigots that voted for it to “Get Brexit Done”, by imposing arbitrary limits on immigration, it does still mean that the government will find itself constrained by rigidities to the labour market that it has itself imposed. Already, we see in today's data that the inflation rate has risen by more than a third since last month, from 1.3% to 1.8%. That is an obvious indication of the effects of Brexit, and is likely to get worse in coming months, particularly if markets feel that Johnson may box himself into a corner and have to implement his ridiculous No Deal threat. Any sign of that will cause the Pound to sell off rapidly, causing import prices to spike.