05 May 1994 - 07 May 1994

Unemployment and Industrial Change in the Developed Countries

Chair: Professor Giuliano Amato

Surprisingly, Ditchley had not looked directly at unemployment for a decade or more, though we had addressed various topics that bear upon it. It was therefore scarcely premature to tackle the subject now. Virtually every industrialised country harboured serious concern about it, though the patterns differed interestingly from one to another. On official figures (always to be viewed warily, for measurement and subsequent comparison presented genuine difficulties, but unlikely in general to be over-stated) total employment in OECD countries was some thirty-five million. In Europe as a whole employment growth, especially in the private sector, was very slow, and largely outpaced by labour-force growth (for example through increased female participation) so that successive economic cycles mostly saw successively higher jobless peaks. Within the totals there were especial problems of youth unemployment and of long-term (over twelve months) unemployment The level of the latter - which moreover excluded the constant in-and-outer - was around 50% of the total unemployed in Europe; the official United States figure, reflecting a more flexible but arguably harsher labour market, with sharper inequalities, was only 6%, but even that included some severe local concentrations. (To our regret, we lacked a Japanese input.) Most participants agreed that long-term unemployment levels like these must be seen as of structural rather than just cyclical origin.

Against all this, we noted that, on average, around 90% of those who wanted work had it; that many (some suggested as much as one-third, in certain countries) of those classified as unemployed, such as individuals nearing the end of customary working life and reluctant to adapt to new tasks, were substantially content to be so; that the great majority of those unemployed found work fairly quickly; and that the labour market could scarcely work without at least some “frictional” element of unemployment. The margins between policy success and failure did not look vast; the presumption must surely be that the problems were not utterly intractable. On any view, there were huge current human needs which labour could address, especially for example in the fields of personal care.

Much of the difficulty, we were reminded, was that for technological reasons (even though technology could occasionally simplify jobs and widen opportunity) competitive performance in modern business mostly required higher skills in the workforce than in the past; and indeed it was even rendering obsolete some existing high-skill competences. This drew us onto the familiar ground of the importance of up-to-date training in tackling unemployment. It was not a panacea, still less an end in itself; it needed to be resolutely directed towards the securing of jobs, and moreover to be partnered by other elements of policy. But a key element in employment strategy, over the non-cyclical medium and long term, must be an increase in the number of effectively-employable people; and training - both to achieve higher standards at initial entry into the work-force, and increasingly to retrain flexibly and recurrently as demands and opportunities changed through working life - was at the heart of this.

We reached no conclusive view about the responsibilities of private-sector employers. The pressures of technological change and global competition meant that large firms in manufacturing and similar sectors were nowadays rarely looking to increase their workforces; trends lay entirely the other way. But media concentration upon these was often disproportionate; the potential for job growth in smaller firms, in self-employment and in the service sector remained extensive; equipping the individual for entrepreneurship, if good methods could be found, was a fruitful avenue. Large labour-shedding companies could help indirectly by managing redundancies in a way designed, especially through training, towards re-employment rather than crude bag-of-gold get-them-out mechanisms; some re-shaping of tax structures by governments might encourage this.

Most of us were sceptical of suggestions that increased globalisation of trade was a major culprit in the unemployment scene, and we were correspondingly reluctant to accept arguments that controlled doses of protectionism (even if we believed that our political systems were capable of honest such control) might be a desirable feature of the policy armoury. No country could now be a commercial island, and the long-term effect of protectionism must be to inhibit aggregate employment, weakening the constraints upon inflation and reducing the fruits of the international division of labour. We heard that most developed countries had trade surpluses with the newly-industrialised countries, and that they took, overall, only about 2% of their imports from developing countries; though particular problems might arise in transition and at the margin, the spectre of general “swamping” could have little credibility. Pressures to demand first-world labour standards in the third world might gravely damage employment in the latter without much benefit to the former; there were genuine issues here for human concern, but they needed to be approached very warily and with careful study.

The problem of poverty and its relationship with jobs, and the lack of them, concerned us deeply. One view strongly put was that to try to use employment policies directly to tackle poverty - for example through concepts of a minimum wage - confused different objectives to the detriment of both; others observed that the work economy had always been the prime operational context for the distribution of wealth, and that social-welfare provision was inherently second-best. But the point was pressed that on a cool business view some unskilled workers were now simply not worth, to an employer, the cost which society legitimately judged to constitute a minimum tolerable income; how was this conundrum to be dealt with? We traversed, broadly but inconclusively, various possible concepts of wage subsidy, negative income tax and the like; vigorous proponents were to be found for some of the candidate schemes, but many of us were uneasy about the awkwardnesses of economic distortion, tax-trap creation, and “churning” of jobs without real increase that tended to result in practice; it might be that policy in this area simply had to be a choice among disadvantages, given the political impossibility of doing nothing.

This discussion carried us into the question of conditions for receiving unemployment benefit and similar social-welfare payments. Here, perhaps surprisingly, we found considerable consensus. Scarcely a voice was to be heard opposing the view that the receipt of benefit by the unemployed must be related to and contingent upon some action - such as the acceptance of training, or of temporary work to contribute value and to sustain the work habit - by the individual towards escaping from that status. So far as possible, benefit systems should increasingly be made a positive support to the working of the labour market. We noted also a strongly-argued view that widespread and customary benefit receipt, especially without active conditions, could foster a corrosive culture not merely of dependence but often of fraud and collusion to exploit the public purse.

Our examination of the labour-market effects of social-welfare benefits and similar protections reflected differences of national custom. Statutory levels of minimum wage found few friends, but we were more divided about the effect of regulations which made it hard for employers to discharge workers readily; it was clear that balances had to be struck here between opposed yet legitimate considerations. Particular concern was expressed about the cumulative effect - especially perhaps in the service sector, already arguably handicapped by inappropriately dismissive attitudes among some groups - which “social” provisions in Europe had upon jobs. It was suggested that the impact of such regulation was to bias company investment undesirably away from labour, and to leave many workers in a growing penumbra of “temporary” jobs. Greater flexibility in hours of working, and in career length and patterns, could help relieve these problems; but it was commented that the secular trend towards shorter hours and shorter careers seemed to have slowed markedly - perhaps under the pressures of international competition, perhaps because of doubtfully-realistic expectations that reduction in work contributed should have no effect on income.

Could major injections of government funding into additional infrastructure programmes, to help absorb unemployment, be of net advantage? We were not sure. If projects were well chosen, they could strengthen economies and so help with jobs; in addition, programmes of this kind could have important psychological effects for individuals taking part. On the other hand, modem infrastructure projects were typically less labour-intensive than past ones, and the macro-economic effects of any marked rise on this account in public spending needed to be weighed. Without being entirely dismissive, we were mostly dubious about this concept as a major component of employment strategies.

We had spirited exchanges about the role, utility and real effects of labour unions in the employment scene. Had their leverage been unwisely and unfairly over-eroded, or were they still mostly a negative factor in the working of labour markets? The middle view was perhaps that no universal judgment could be made - it all depended on how unions behaved; they could help or harm, and there were persuasive examples of both outcomes.

If any general conclusions emerged, they were that counter-unemployment strategies needed to be coordinated and many-faceted (but essentially supply-side); that they needed to be patient, and to value continuity; that they needed to rest on proper information - better than now, for example on job vacancies - and to take the task of objective evaluation seriously. We heard with keen interest of the comprehensive strategy on which Canada was embarking in this general spirit. Above and beyond all this, however, we agreed that the issues of unemployment - involving as they did profound matters of individual well-being, and of danger to the community - needed to take and hold centre stage politically, even amid economic up-turn. The structural problems were tough, and their active addressal urgent. Political leaders had accordingly a special - and sometimes difficult - duty to keep the urgency before the attention of the job-satisfied majority of voters. The problems were not insoluble; that fact both needed and justified optimism.

This Note reflects the Director's personal impressions of the conference. No participant is in any way committed to its content or expression.

Chairman: Professor Giuliano Amato


Mr Geoffrey Armstrong
Mr Philip Bassett            
Mr Peter Bottomley MP
Mr Nick Butler
Mr Frank Field MP         
Mr Christopher Huhne
Professor Richard Layard            
Mr Leif Mills      
Professor Patrick Minford
Mr Geoffrey Mulgan     
Sir Austin Pearce CBE
Mr Nick Raynsford MP
Mr Graham Reid CB       
Dr Stanley Siebert          

The Hon Lloyd Axworthy PC MP              
Mr Paul Fraser QC          
Mr H John Harker           

M Bernard Auberger     
M François Lagrange     

Professor Dr Herbert Giersch
Dr Uwe Jean Heuser

Dr Ceyla Pazarbasioglu

Dr Ajit S Bhalla

Mr R A Cornell

Dr Barry Bluestone
Mr Sheldon Friedman
Dr Robert W Jerome
Professor Robert Z Lawrence
Mr William A Niskanen
Professor Edmund S Phelps
Dr Howard F Rosen
Mr Lynn R Williams

Dr Mark A Dutz