Eurozone is not to blame for youth unemployment

Columnist

Thursday 17 November 2011

I'm old enough to remember the furious reaction when UK unemployment first reached one million in 1972.

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My parents and their friends were genuinely shocked and couldn’t stop talking about it. Mass unemployment was seen as politically unacceptable, a return to the 1930s.

It led the Conservative government of Edward Heath to scrap his entire economic policy and launch a “dash for growth”, the Barbour Boom of 1973, which unfortunately led to hyper-inflation, industrial unrest and the arrival of the International Monetary Fund.

Our tolerance of unemployment has increased. The reaction to the news that youth unemployment alone has now reached one million -- the highest ever recorded in Britain -- was muted. Employment Minister Chris Grayling said it was a “distraction” because the figure included 300,000 students looking for work.Now, I wonder why they’re doing that? What was not a distraction, apparently, is that a third of young people in work are actually in part-time temporary jobs and looking for proper ones. So the figure should arguably be 1.3 million.Britain now has 2.6 million unemployed -- the highest figure since 1994, but what that doesn’t tell you is that nearly a third of the employed workforce, eight million, are in part-time work. Temporary, contract and agency working has been the big untold story of the Great Recession. And it isn’t going to end any time soon.The old social contract of secure full-time jobs, with pensions, has been ripped apart. Only in the public sector does job security and the nine-to-five still apply, and that will have to end soon because the earnings of the private sector workers who pay the salaries and pensions of the public sector are falling fast.And we aren’t talking pennies here. Research by VocaLink for BBC’s Panorama in March showed that real average take home pay in Britain, after inflation, has fallen by £1,088 since 2009. That’s why retailers are expecting a dismal Christmas.Older people living on savings are also seeing their spending power destroyed by a combination of zero interest rates and 5% inflation. To generate an index-linked pension of £20,000 from the leading annuity provider, Aviva, a 65-year-old man needs to have saved up nearly £600,000. Look it up if you don’t believe me.The silver surfers, who were expected to boost the leisure economy as they spent their life savings, aren’t going to come to the rescue. There has been a 900% (not a misprint) increase in the numbers of over-60s taking up apprenticeships under the Government’s skills training programme.Young people are having to jostle in the jobs market with highly experienced oldies who are adaptable, educated and disciplined. And remember it is now illegal to force a worker to retire at 65.So, what is to be done? Well, growth is of course the answer to the problem of youth unemployment as to all economic woes. Get the eurozone sorted out, says the Government, and it will all come right in the end. Except that it won’t -- the current growth in unemployment predated the troubles in the euros.There is a structural change taking place in the global economy. Manufacturing has migrated to China and south-east Asia, and it isn’t coming back, unless we accept pay levels of £1300 a year.Growth is best achieved in advanced manufacturing economies such as Germany where increases in productivity allow firms to remain competitive even with high wages. If you have a labour intensive service economy like ours it’s much more difficult. A hairdresser can only cut so many heads in a day.It’s very hard to increase the productivity of a nurse. The financial services industry often extracts a rent from the productive economy by charging high fees for dodgy products like endowment mortgages.Meanwhile, the information revolution has been killing many service sector jobs -- newspapers, retailing, the recorded music industry -- because it has reduced the costs of certain goods to near zero: think of free music on Spotify, or email replacing the labour- intensive postal service.What has kept Britain going is debt. Household debt has risen from 40% of annual earnings in the early 1980s to 157% today. Headline Government debt is £1 trillion, excluding public sector pensions and the bank rescue. According to moneyfacts website, if you add total public sector and private liabilities, every household in Britain owes more than £100,000.This debt, largely built on illusory house prices, is what has produced most of the growth since the dot.com crash in 2000 -- and it is unsustainable. The Bank of England has tried to make the debt go a little further by slashing interest rates to the lowest level in 300 years, allowing inflation to rip, and devaluing the pound by 25%.This was supposed to lead to a manufacturing renaissance as British exports became much more competitive in world markets. It hasn’t happened, largely because we don’t have much manufacturing left.So where do we go from here? Euthanasia? Don’t laugh, if the incomes of older people continue to collapse as longevity increases, millions will be unable to live dignified lives. Nor can we allow another wasted generation of young unemployed and under-employed.We need a growth strategy clearly, but we also need a fundamental review of what work means. With computers taking over, there isn’t going to be so much work to do in future. This means reducing the working week. There will have to be redistribution to claw back the 40% or so of wealth hoarded by the top 1%.We also need a financial transactions tax to rein in finance and pay for future bank rescues -- though the British Government is opposing the proposal to have one in the EU. None of this is going to happen overnight -- especially with a sovereign debt crisis ravaging Europe and with countries resorting to protectionism.The bright side? With between £300bn and £400bn of oil left in the North Sea, a quarter of Europe’s wind and wave energy, five world class universities and a resilient tourist industry, Scotland could be one of the best placed countries in the world to cope with the demands of the new post-industrial economic order. Go tell the Chancellor.

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Eurozone is not to blame for youth unemployment

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