Economic View: Pick 'N' Mixing Offers a Solution to Jobless Crisis

Article excerpt

High unemployment can be solved, and it is clear what form the solutions have to take. But this dramatic conclusion of the two-year Jobs Study conducted by the Organisation for Economic Co-operation and Development, and presented to ministers in Paris this week, is not necessarily good news for politicians grappling with the problem.

For it is a bitter medicine. The solutions the OECD's experts have identified require many European governments to accept that in a changed world they cannot continue to run their economies in the way they have for the past 50 years.

In other countries such as the US and UK they require acceptance that fiercely contested policies which have removed traditional union, workplace and social security rights have nevertheless created more jobs.

During the past two years it is clear that the governments of almost all industrial countries have come to accept, to some extent, the diagnosis presented in the OECD's exhaustive research.

Briefly, it is that almost all the unemployment in the industrial world has structural causes, as the chart (top right) demonstrates.

Boosting the economy through the traditional methods of lower taxes or lower interest rates would make some difference to the jobless total but not much. Structural unemployment has ratcheted up due to the effect of existing industrial relations practices and benefit structures in a world economy that has suffered a series of shocks ranging from higher oil prices in the 1970s to the introduction of new information technologies.

By and large, most governments accept the validity of this view - even those, like the Germans, who earlier resisted it.

At the OECD meeting this week Lorenz Schomerus, a German economy minister, said: "Since all the studies considered reliable demonstrate that Europe's growth and employment problems are largely of a structural nature, our policy response must take the form of measures to improve these structures."

The recent programmes announced by the German government take this as their point of departure, he added.

It was hard to find a minister at the annual Paris get-together who disagreed. However, you only have to read reports of new strikes in Germany this week to see the stumbling block. Governments might have reached a consensus but they have not marketed it to their electorates.

Who can blame them? Although Margaret Thatcher won re-election in 1983 and 1987, she was one of the most hated of British politicians because of her determination to destroy union influence and deregulate the economy. It was a divisive strategy that will not play well in other countries.

It is clear that many Continental politicians see their task as choosing the best point on a trade-off between unemployment and inequality, a trade- off that has pushed Britain and the US towards the low unemployment, high inequality end, and countries like Sweden and France to the other extreme.

Earnings inequality has risen faster in Britain, the United States, and New Zealand - the three countries most praised by the OECD for their labour market flexibility - than elsewhere in the industrialised world. Other countries would like to move a bit further towards the British end but are not prepared to go all the way.

The British government argues passionately, privately supported by OECD economists, that the notion you can have either flexibility or fairness, but not both, is bogus.

Angela Knight, economic secretary to the Treasury, stressed that unemployment was the biggest source of inequality.

"Clearly the most effective way to tackle what is called social exclusion is to create jobs," she said. But she agreed that the message of fairness through flexibility, as opposed to fairness versus flexibility, had not yet been widely accepted.

It is not an easy message to sell at a time when growth has slowed in Europe and unemployment is rising. …