LABOUR EURO-SAFEGUARDS CAMPAIGN

BULLETIN APRIL 1997

QUESTIONS AND ANSWERS ON JOBS AND THE EUROPEAN UNION

 

1. What is the current rate of unemployment in Britain, and how does this compare with the past?

1.746m people were registered as unemployed in Britain in February 1997 on a seasonally adjusted basis. This represented 6.2% of the total registered labour force. Although the present rate of unemployment is considerably less than the most recent peak figure of 10.4%, reached in 1993, it is much higher than in the 1950s and 1960s. During these two decades unemployment averaged less than 3%.

2. Does the British headline unemployment figure include everyone out of work?

No, the headline figure only includes those registered as unemployed and claiming benefit. At the end of the summer of 1996, covered by the September 1996 issue of the governmentís Labour Force Survey, an additional 2.4m people would have liked to have worked if jobs had been available. These included large categories of the population, such as people who had retired early, those dependent on another wage earner, and people looking for work who were unable to claim the Job Seekerís Allowance. All were either unable or unwilling to claim benefits, and were therefore excluded from the official unemployment total.

3. How does this compare with the figures for the European Union as a whole?

The unemployment percentage published in Britain is lower than the generally quoted International Labour Organisation figure, because it is based on claimants rather than the numbers registered as looking for work. On the ILO basis, Britainís unemployment percentage in October 1996 was 7.9%, compared to the governmentís figure at the time of 7.2%. The EU average, on the ILO basis, was then 10.9%

4. Is the percentage out of work roughly the same in all EU countries?

No, it varies widely from one member state to another. Again on an ILO basis, in October 1996 Spain had far the worst figure, with 22.3% out of work. France had 12.5% unemployment, and Germany 9.1%, although German unemployment has risen very steeply since then, and is now 12.2%. Denmark had 5.6% unemployment last October, Austria 4.1% and Luxembourg only 3.2%.

5. How does the headline figure for registered unemployment across the EU compare with the total numbers who would like to work, but who are not included in the official count?

ILO figures show that there is a wide difference across the member states of the EU in the ratio between those registered as out of work and the total potential labour force. The latest fully comparable figures are for 1995. These showed that only 1.4% of the economically inactive population would like to work in Greece, and 1.7% in France, compared to 13.1% in Denmark and 11.4% in the Netherlands. The percentage for Britain was 12.1%. Even though the figures for some countries look very low, the Survey shows nearly 17% of the total potential EU labour force not working in 1995 - a total of nearly 26m people. As EU unemployment has worsened over the last two years, the current total must now be close to 30m.

7. Are some groups of people in the EU more inclined to be out of a job than others?

Yes they are. In the EU as a whole, women are about one third more likely than men to be out of work, although in Britain male unemployment is about a quarter higher than for females. Throughout the EU, however, people under 25 are much more likely to be out of work than older members of the labour force. The EU average unemployment rates for those under 25 in October 1996 was 21.6%. Spainís figure then was a horrifying 42.8%, Finlandís 31.2% and Franceís 29.1%. The Danish figure was 7.1%, Austriaís 5.9%, and Britainís 14.6%. There are no figures produced on a comparable basis across the EU for ethnic minorities, but undoubtedly, the percentage unemployment among these groups is also well above the average.

6. Is high unemployment unique to the EU, or does the whole world suffer from this problem?

The average rates of unemployment in the EU are much higher than in other comparable areas of the world. The ILO percentage for the USA in October 1996 was 5.2% and for Japan it was 3.3%. Nearer to the EU, but outside the EU, Norwayís unemployment rate is currently 2.5%, and Switzerland has almost no-one out of work at all. The US unemployment rate used to be considerably higher than in the Community, but it is now much lower than the EU average.

8. Why is unemployment so much worse in the EU than elsewhere in the developed world?

The basic reason for unemployment is that there is not enough work to go round to provide everyone who wants a job with the opportunity to obtain one. Lack of work is caused by there being insufficient demand to provide full employment. The fundamental problem with the European Union is that for the last quarter of a century, EU economies have been run with too heavy a deflationary bias. As a result they have grown very slowly, at a cumulative rate since 1979 of only about 1.7% per annum. As productivity among the employed labour force in the EU, as elsewhere all over the developed world, has been rising at about 2.5% a year, increasing unemployment has been the inevitable consequence.

9. When did unemployment rates in the Community start to diverge from those in the rest of the developed world?

Very significantly, the divergence began in the early 1970s, when the first attempts were made to lock the currencies of the Community together in what was then called the Snake. The Snake became defunct in the mid 1970s, but it was replaced by the Exchange Rate Mechanism in 1979, which lasted until 1993, when market pressures forced the ERM parities apart. The problem throughout almost all both these periods when exchange rates were locked together was that Germany had a lower inflation rate and more competitive output than the other ERM economies. As a result all the other countries in the ERM had to deflate their economies, to avoid balance of payments problems. As about two thirds of Germanyís exports went to other EU countries, this in turn pulled down Germanyís growth rate

10. What plans are there for reducing unemployment in the EU?

A number of initiatives are in operation or under consideration, but it is doubtful whether they will make much difference. The EU has a major training programme, supplemented at national level by additional resources, but the problem is not lack of skills, it is lack of work. In these circumstances newly trained people are all too likely to displace others rather than to create net new jobs. There are also plans for a major public works programme, financed at EU level, to create jobs while improving the EUís transport and telecommunications infrastructure. Unfortunately, however, these plans have run into substantial opposition and delays, and currently look unlikely to proceed on a sufficient scale to be of much help. Some people think the solution is to share the available work out more evenly, by reducing the working week and limiting overtime, but there is little convincing evidence that this is a viable solution.

11. What would provide a solution to unemployment in the EU?

By far the most effective solution to the EUís jobs crisis would be a major reflation across the whole of the Union. This would entail lower interest rates, more accommodating monetary policies, and exchange rate adjustments, enabling those economies which at present have an impossible job competing and keeping their labour forces employed to regain the competitive edge they need. There is also increasing evidence that Europeís industrial structure is becoming less and less competitive, particularly with that of the Pacific rim economies. The EUís share of world trade has been falling. There needs to be another exchange rate adjustment to allow for this between the currencies of all the EU economies and the US dollar and other world currencies. A hopeful sign here is the currently falling value of the Deutschemark against the dollar.

12. Would not these exchange rate changes cause inflation?

No, it is very unlikely that they would generate a significant inflationary problem. In any case, there is no evidence from anywhere in the world that a much higher rate of growth can be achieved without some inflation. During the 1950s and 1960s, in the European countries then growing at nearly 6% per annum, inflation averaged about 4% a year. Inflation rates in the EU are now very low, and, if we have to do so, it must be worth paying some price, in terms of slightly higher inflation rates, to achieve much higher growth and full employment.

12. Where do plans for a Single Currency fit into all of this?

Unfortunately, the Single Currency, due to start on 1st January 1999, is all too likely to take us back to the conditions which prevailed with the Snake and the ERM. Once currencies are locked together, there is no way in which countries which become uncompetitive can use exchange rate adjustments to restore their ability to compete. All they can do is to deflate and raise unemployment. This is why the Single Currency is such a high risk strategy.

13. What about the Maastricht criteria?

The convergence criteria, agreed at Maastricht, provide benchmarks against which the performance of all the EU countries eligible to join the Single Currency will be judged. They are wholly concerned with monetary and fiscal ratios, and not with growth and employment. Their impact over the coming period is inevitably going to be to produce more deflation, as all the EU economies cut expenditure and raise taxes at the same time to try to squeeze themselves into to the financial convergence parameters which have been set.

14. What should Britain do?

Britain negotiated an opt-out from Stage Three of the Single Currency project at Maastricht. This means that we are not obliged to go into the Single Currency unless doing so has been specifically approved by the House of Commons. Far our best course of action is to stay out. This will then preserve our ability to pursue our own economic policy, which should involve expansion and full employment, and not the contraction which, on all historical experience, will be forced on all the EU member states which join the Single Currency. As happened with the ERM, there may be a honeymoon period when all seems to be going well, but is unlikely to last long. The risks of uneven growth generating still more depression and unemployment before long right across the EU, including Britain if we joined, is much too high.

 

Published by the Labour Euro-Safeguards Campaign

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